Accountant For A Limited Company

How to reduce your Corporation Tax bill

UK limited companies pay corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with a tapered marginal rate in between for 2025/26. Directors can reduce the bill by claiming every allowable expense, taking a tax-efficient salary, using the £1 million Annual Investment Allowance on equipment, exploring R&D and Patent Box reliefs, and paying HMRC early to earn interest credit. Planning across the accounting period is essential.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 5

Key takeaways

Corporation tax rates for 2025/26 are 19% for profits up to £50,000 and 25% for profits above £250,000, with tapered marginal relief in between.
Claiming every allowable business expense, including salaries, pension contributions, and home-office costs, directly reduces taxable profit.
The £1 million Annual Investment Allowance lets companies deduct the full cost of qualifying plant and machinery in the year of purchase.
Research and Development reliefs merged from April 2024 into a single 20% above-the-line credit, with a higher rate for loss-making R&D-intensive SMEs.
HMRC pays interest on early corporation tax payments made after the first day of the 13th month after the accounting period starts.

Tactics on reducing your corporation tax bill

As a small business owner, staying on top of your finances can seem overwhelming, particularly when you're just starting out.

One of the key areas you need to keep an eye on is your company tax, and that's tricky subject to navigate. You want to reduce your tax bill wherever possible - and be in the good books of HMRC while doing so.

Below, we'll share a number of tactics you can implement to reduce your Corporation Tax. Keep in mind that these are tactics that are related to businesses in general, and depending on your situation or industry, there could be other tax reliefs that may apply.

And as your business grows, there may be additional allowances or deductions that you now qualify for, but missed out on applying for previously. As such, we highly recommend checking in with our accountants at Forma to clarify any tax issues you're unsure about.

The basics of Corporation Tax

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Before we dive into the tactics you can implement to reduce your Corporation Tax, here's a quick overview of the basics of Corporation Tax:

What is Corporation Tax?

Corporation Tax refers to tax you pay on the profits earned by your company.

You'll need to register for Corporation Tax within three months of trading commencing.

Who pays Corporation Tax?

Limited companies are required to pay Corporation Tax at a rate of 19 percent (for the 2021/22 tax year).

Use our corporation tax calculator to work out how much corporation tax your company will need to pay.

When is it due?

Your Corporation Tax is due nine months and one day following the end of your accounting period.

That means that if the end of your accounting period falls on 31st March 2021, your Corporation Tax must be paid up by 1st January 2022. The payment is made once per year for businesses with profits below £1.5 million. Companies with profits exceeding £1.5 million will make their payment in instalments.

Salaries & Expenses to Claim

Claim your business expenses

It can seem tedious noting down minute business expenses amounting to no more than a few pounds - yet it pays to be meticulous, as these expenses can add up over the long run.

You'll need to keep proper records of your purchases, and apps such as Xero, BizXpenseTracker and Expensify can help simplify the process.

Just keep in mind HMRC's rule, which states that all revenue expenses claimed must have been incurred "wholly and exclusively" for the purposes of running the business.

Here are a few examples of allowable business expenses:

Business entertainment expenses
Business travel expenses
Business use of home expenses
P11D expenses
Pension contributions
Work from home allowance

For further information, refer to our guide for a comprehensive list of allowable limited company expenses you can claim as a limited company director.

Pay yourself a salary

Salaries are considered a business expense.

By paying yourself a salary, you're reducing your profit, and subsequently your Corporation Tax.

Early Tax Payment Incentives

Make an early payment to HMRC

If you've paid tax early, HMRC will pay you a credit interest.

HMRC will typically pay interest from the date you pay your Corporation Tax to the payment deadline, and the earliest date they'll pay interest is six months and 13 days after the start of your accounting period.

Here's an example:

If your accounting period starts on 1st January 2021 and ends on 31st December 2021, you can pay your Corporation Tax anytime between 13th July 2021 (six months and 13 days after the start of your accounting period) and 1st October 2021 (HMRC's deadline).

HMRC will usually pay you interest for the duration starting 13th July 2021 till 1st October 2021.

Take advantage of tax allowances and reliefs

‍Annual Investment Allowance (AIA)‍

If an item qualifies for the AIA, you can deduct its full value from your profits before tax.

You can claim AIA for most plant and machinery up to the AIA amount. This amount had been temporarily increased to £1 million until 31 December 2021, and it is set to revert to £200,000 starting 2022.

Do note that if you're running more than one business, you only get one AIA.

Business rates relief

The small business rates relief scheme reduces the amount of business rates small business owners need to pay.

The scheme is available to small business owners who own a single property with a rateable value of up to £15,000.

SME R&D relief

‍R&D tax reliefs are available to companies working on science and technology projects.

It allows businesses to deduct an extra 130% of their qualifying costs from their annual profit, or claim tax credits if the company is making a loss.

Patent Box tax relief‍

The Patent Box tax relief is available to companies earning profits from patented inventions. Eligible companies can apply for a lower rate of Corporation Tax (10%) on those profits.

Creative industry tax relief

This refers to a group of 8 Corporation Tax Reliefs available to certain types of businesses in creative industries.

Qualifying companies can claim a larger deduction, or claim a payable tax credit depending on the circumstances.

Frequently asked questions

What is the current UK corporation tax rate?

For 2025/26 the small profits rate is 19% where taxable profits do not exceed £50,000 and the main rate is 25% where profits are above £250,000. Between these thresholds marginal relief tapers the effective rate from 19% to 25%. The thresholds are divided between associated companies, so a group of two 50/50 companies each pays the 25% rate from £125,000 of profit, not £250,000. Accounting period length is also pro-rated.

How can I reduce my corporation tax bill legally?

Claim every allowable business expense, including a director's salary up to the Secondary Threshold, employer pension contributions, home-office costs, mileage, training and professional fees. Use the £1 million Annual Investment Allowance on qualifying equipment. Consider R&D tax relief if you have eligible projects, and the Patent Box for patent-derived profits. Keep clean, contemporaneous records so HMRC cannot disallow legitimate claims during an enquiry.

What is the Annual Investment Allowance and how does it work?

The Annual Investment Allowance (AIA) lets a company deduct up to £1 million of qualifying capital expenditure from profits in the year of purchase, rather than spreading the deduction over several years. It covers plant and machinery, computers, office equipment and most commercial vehicles. Cars are excluded from AIA. The £1 million cap is shared between associated companies and pro-rated if the accounting period is shorter than 12 months.

Can I claim R&D tax relief for my limited company?

From April 2024 the SME and RDEC schemes merged into a single 20% above-the-line credit on qualifying R&D expenditure, with an enhanced 27% rate for loss-making R&D-intensive companies where R&D is at least 30% of total spend. Eligible activities must seek an advance in science or technology and resolve real uncertainty. Software development, engineering and scientific projects commonly qualify if they are not routine work.

Does paying corporation tax early reduce the bill?

Paying corporation tax early does not reduce the bill, but HMRC pays credit interest on early payments from the date received until the normal due date, which is nine months and one day after the end of the accounting period. The current credit interest rate is set by HMRC and updated in line with the Bank of England base rate. It is a useful option for companies holding cash that would otherwise earn low returns.

Is a director salary more tax-efficient than a dividend?

Salary reduces corporation tax because it is a deductible expense for the company, while dividends are paid from post-tax profit. Salary attracts Income Tax and National Insurance above the thresholds, whereas dividends carry lower rates (8.75%, 33.75%, 39.35% for 2025/26) but no deduction for the company. The standard planning is a small salary at or below the Secondary Threshold plus dividends for the rest of take-home pay.