Corporation Tax for UK Companies: What You Need to Know

Introduction

Corporation Tax is a mandatory tax that UK companies pay on their taxable profits and chargeable gains. As of now, the main Corporation Tax rate in the UK is 25%, while companies with profits under £50,000 qualify for the small profits rate of 19%. If your company's profits fall between £50,000 and £250,000, you may be eligible for marginal relief.

Understanding Corporation Tax and how to reduce your liability can save your business significant amounts. 

Read our expert guide below to learn how to reduce your Corporation Tax bill legally and efficiently.

6 Proven Ways to Reduce Your Corporation Tax Bill

1. Pay Yourself a Salary

As a director of a limited company, paying yourself a salary is a tax-efficient way to reduce your Corporation Tax. Director salaries are classified as a tax-deductible business expense, lowering your company’s taxable profits.

To maximise tax efficiency, many business owners combine a salary with dividends. However, getting the right balance is crucial—too high a salary could lead to unnecessary tax costs, while too little could mean missing out on benefits. Our expert accountants can advise on the optimal structure for your business.

2. Use the Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA) allows UK businesses to deduct the full cost of qualifying equipment and machinery from taxable profits, up to £1 million per year.

This means if your company invests in business equipment, tools, or machinery, you could significantly reduce your tax bill. However, AIA does not apply to cars or non-business-use assets.

Strategic tax planning is key—in some cases, claiming AIA may not be the best approach. Speak to our team to ensure you’re making the most of your capital allowances.

3. Take Advantage of Government Tax Relief Schemes

The UK Government offers various tax relief schemes designed to support business growth and innovation. These include:

• R&D Tax Credits – If your company invests in research and development, you may qualify for substantial Corporation Tax savings.

• Patent Box – If your business earns income from patented inventions, you could benefit from a reduced Corporation Tax rate of 10%.

• Creative Industry Tax Reliefs – Companies in the creative sector can claim additional deductions to reduce Corporation Tax liability.

Not sure if your business qualifies? Our team can help you claim all eligible reliefs.

4. Make Pension Contributions

Making pension contributions for yourself and your employees is not only a great way to secure financial stability, but it’s also a smart tax-saving strategy.

• Employer pension contributions are fully deductible from taxable profits.

• Given the main Corporation Tax rate of 25%, a £100 pension contribution effectively costs only £75 after tax relief.

If you're unsure about setting up or managing a workplace pension scheme, our team is here to help.

5. Claim All Allowable Business Expenses

Many business owners miss out on legitimate tax deductions simply because they’re unaware of what qualifies as an allowable business expense.

Common tax-deductible expenses include:

• Business mileage

• Charitable donations

• Professional trade subscriptions

• Advertising & marketing costs

• Employee benefits (e.g., staff eye tests)

Making sure you claim all eligible expenses can significantly lower your Corporation Tax bill. 

6. Pay Your Corporation Tax Early

Did you know that paying your Corporation Tax early could earn you credit interest from HMRC?

• You can pay early six months and 13 days after the start of your accounting period.

• HMRC will apply credit interest to your payment, which can offset future tax liabilities.

However, remember that credit interest is taxable and must be reported in your company accounts.

Need help with your Corporation Tax?

Our experts are ready to help your business thrive. Contact us today to learn more about our accounting services, and let us take care of your needs.