If you run a limited company, knowing how to reduce your corporation tax bill legally is one of the most valuable things your accountant can help you with. It is not about clever schemes or exploiting loopholes — it is about making sure you claim everything you are genuinely entitled to, structure your affairs in the most efficient way available, and plan ahead rather than scramble at year-end.

For the 2026 financial year, the main rate of corporation tax remains at 25% for profits over £250,000, and 19% for companies with profits below £50,000. Between those thresholds, marginal relief applies. That gap is significant — and for many of our clients, thoughtful planning is the difference between paying the minimum legally required and handing over more than necessary.

Below, we have pulled together the strategies we return to most often. Some are straightforward; others require a bit more planning. All of them are fully compliant with HMRC’s rules.

It helps to be clear about the numbers you are working with. For the financial year 2026, the corporation tax landscape looks like this:

• Small profits rate (19%) — applies if your augmented profits are below £50,000.
• Main rate (25%) — applies if your augmented profits exceed £250,000.
• Marginal relief — for profits between those limits, a tapered rate applies. The standard fraction for 2026 is 3/200, which HMRC uses to calculate the relief.

The £50,000 and £250,000 thresholds are also divided by the number of associated companies, so if you have a group structure or related entities, the bands reduce accordingly.

Understanding exactly where you sit relative to these thresholds is the starting point for any sensible planning. A company with £200,000 in profits that can bring taxable profit below £50,000 through legitimate deductions moves from the marginal relief zone into the small profits rate — a meaningful difference in cash terms. This is why year-end planning conversations matter, and why we encourage clients to have that conversation with us before the accounting period closes, not after.

This sounds obvious, but in our experience it is where the most money is routinely left on the table. HMRC allows limited companies to deduct expenses that are incurred wholly and exclusively for business purposes before calculating taxable profit. That covers a wider range of costs than many directors realise.

Common allowable expenses

• Office costs — rent, rates, utilities, and relevant home office costs
• Travel and mileage — business journeys, accommodation, and subsistence
• Staff costs — salaries, employer’s National Insurance contributions, and staff training
• Professional fees — accountancy, legal advice, and relevant subscriptions
• Marketing and advertising — website costs, campaigns, and PR
• Technology and software — hardware, subscriptions, and cloud tools

The words wholly and exclusively do matter. A business meal with a client is generally not deductible; a staff team lunch may be under certain rules. A home broadband bill used partly for work is not automatically fully deductible — the business-use proportion usually is.

The practical fix is to keep clean records throughout the year rather than trying to reconstruct them in a rush before your accounts are prepared. That is exactly why we recommend cloud bookkeeping through Xero — it makes expense capture straightforward and gives you visibility in real time, not retrospectively.

If your company buys equipment, machinery, commercial vehicles, or office furniture, you do not simply deduct the full cost through expenses. Instead, capital allowances allow you to claim tax relief on those purchases — and the rules are generous.

The Annual Investment Allowance (AIA) currently permits a 100% deduction in the year of purchase for qualifying plant and machinery, up to £1 million per year. For most small and medium-sized businesses, that cap is rarely a constraint — it means you can write off the full cost of most capital purchases in one go rather than depreciating them over several years.

There is also the Full Expensing regime introduced in recent years, which allows companies to deduct 100% of the cost of main pool plant and machinery in the year of purchase with no annual cap — a significant development for capital-intensive businesses.

The timing of capital purchases matters here. If you are planning to invest in equipment, doing so before your year-end means you can accelerate relief into an earlier period. That is a simple planning point, but one worth flagging before your accounting period closes.

Not all assets qualify — the rules are specific about what counts as plant and machinery versus fixtures, structures, or cars (which have their own rules). If you are unsure whether a planned purchase qualifies, it is worth asking before you commit.

A limited company can make contributions directly into a director’s pension scheme, and those contributions are treated as an allowable business expense — reducing the company’s taxable profit pound for pound, with no employer National Insurance on top.

Compare that with taking additional salary: the company pays employer’s NI at 15% (as of April 2025), the director pays income tax and employee’s NI, and then pays income tax again on the pension contribution when they take it out in retirement at (typically) a lower rate. The arithmetic strongly favours routing pension contributions through the company rather than taking cash and contributing personally.

There are annual allowance limits — currently £60,000 per year across all contributions, though unused allowance from previous years may be carried forward. Higher earners with adjusted income above £260,000 face a tapered annual allowance. These rules are worth reviewing each year rather than assuming you know the position.

In our view, company pension contributions are one of the most underused tools available to owner-managed businesses. If you are taking a modest director’s salary and drawing dividends, a well-structured pension strategy could materially reduce your corporation tax bill while building a genuinely useful retirement fund. That is planning that benefits the business and you personally.

If your company undertakes work that involves resolving scientific or technological uncertainty, you may qualify for Research and Development (R&D) tax relief. That does not just mean pharmaceutical labs or deep-tech start-ups. It includes software development, engineering improvements, bespoke product design, and even certain process innovation projects.

For companies qualifying under the merged R&D scheme (which now covers most claimants following April 2024 reforms), eligible expenditure generates an enhanced deduction that directly reduces taxable profit. Loss-making companies may be able to surrender the loss for a tax credit — real cash back from HMRC.

The other specialist relief worth understanding is the Patent Box, which allows companies to apply a reduced corporation tax rate of 10% on profits attributable to patented inventions. For businesses with intellectual property, this can be a meaningful ongoing saving.

Both reliefs come with specific qualifying criteria and require careful claims preparation. HMRC has been scrutinising R&D claims more closely in recent years, so the quality of claim documentation matters. We help clients identify whether they qualify and prepare claims that can withstand scrutiny — because a poorly evidenced claim is not just a wasted opportunity, it is a potential penalty risk.

Beyond these, if your business has not reviewed its corporate structure recently, there may also be opportunities around group relief, inter-company charges, or how intellectual property is held and licensed. These are conversations better had proactively than reactively.