“Reducing” the amount of tax you pay is a tricky concept. Most responsible individuals and businesses want to pay the correct amount of tax that they owe – but equally, don’t want to pay more than they have to.

The good news is that there are perfectly legitimate ways to reduce your Corporation Tax bill. In our opinion, the biggest opportunity isn’t finding some obscure tax loophole, it’s actually making sure you’ve claimed everything your company is actually entitled to before sending money to HMRC.

In this article, we’ll look at the options available, how they could apply to your circumstances, and what they could actually mean for your Corporation Tax bill, with real-world examples along the way.

How much is Corporation Tax for a limited company?

The Corporation Tax rate for company profits for the 2026/27 tax year (and 2025/26 tax year) is 19-25% – a business with £100,000 in annual profit will pay £22,750 in Corporation Tax - profits between £50,000 and £250,000 pay Corporation Tax of 25% reduced by the marginal relief rate.

The key to making sure you pay no more Corporation Tax than you have to is to claim every allowable deduction and expense to give an accurate picture of your profits.

If you paid £5,000 for a new piece of equipment but forgot to claim the capital allowance you’re entitled to, your profits may be overstated by £5,000 – so you’ll pay £950 extra in Corporation Tax. It literally pays you to stay on top of these things.

Every situation is different, and there may be allowances or deductions for your specific industry (as always, check with a tax expert if unsure), but there are a few basics every business owner should know to make sure they’re not paying more tax than they need to.

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Four ways to reduce your Corporation Tax Bill

1. Claim every business expense you're allowed

Not sure about the basics? Have a read or watch the video below.

Now make sure you’re claiming everything. It may seem like a hassle to record every £3 bus ticket and £2 pad of paper, but over the course of a year those items add up.

You’ll have industry-specific items to claim too – there are no hard-and-fast rules on what you can’t claim. What might be a clearly-excessive luxury for one business could be a run-of-the-mill necessity for another. Just remember HMRC’s “wholly and exclusively” rule; anything you claim must be entirely for business use.

Some other expenses you may not have considered include pension contributions and professional insurance. Both of these can be paid through your company, rather than by you personally.

How effective can it be?

This depends entirely on how much you spend, but small expenses for your business can add up surprisingly quickly over a year. If you find £1,000 of legitimate business expenses that you’ve missed, for example, could reduce your taxable profits by £1,000. At a 19% Corporation Tax rate, that could mean £190 less tax to pay.

The bigger your expenses, the bigger the potential impact you’ll see. The important thing is not to start spending money just to reduce your tax bill. You’re still spending the money. The aim is to make sure you’re not paying tax on genuine business costs you’ve already incurred.

Our take: 

Don’t focus only on the big-ticket expenses. A £20 expense isn’t going to transform your Corporation Tax bill, but dozens of small expenses can add up over the year. More importantly, get into the habit of recording expenses as you go rather than trying to remember everything at Year End.

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2. Don’t forget to pay yourself a salary

When running a Limited company solo it can sometimes be easy to forget that your business is a separate legal entity – your business’ money isn’t yours! So, to get it into your pockets, you need to pay yourself a salary.

Salaries are business expenses, which reduce your profit and, in turn, your Corporation Tax. So before it’s time to pay tax on your profits, pay yourself!

A word of caution though. Many business owners pay themselves with a mixture of salary and dividends – dividends are drawn from profit, so you need to be able to show you have profits available before issuing dividends. Otherwise, HMRC will most likely reclassify your dividends as salary and you’ll need to pay Income Tax and National Insurance Contributions.

Check out our article to learn how and why to open a business bank account.

How effective can it be at reducing Corporation Tax?

Paying yourself through your company can have a meaningful effect on your Corporation Tax bill because salary is generally an allowable business expense. However, the Corporation Tax saving isn’t the only thing to consider because salary can also create Income Tax and National Insurance complications. 

For example, if paying yourself an additional £10,000 in salary reduced your company’s taxable profit by £10,000, the company could potentially save £1,900 in Corporation Tax (at a 19% rate). That doesn’t automatically mean you’re £1,900 better off though, because that extra £10,000 in salary has business tax implications too.

So while it’s a great option, paying a bigger salary isn’t always the best option for reducing your Corporation Tax. It’s worth speaking to your accountant because a mixture of salary, dividends, and pension contributions for example might have fewer tax consequences whilst still reaping the benefits of a lower Corporation Tax bill. That’s why our accountants offer Tax Optimiser calls where we look at the whole picture, rather than just trying to reduce your company’s profit as low as possible. 
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3. Go shopping

If you need a new laptop or phone for business use, buying them through your company is the most tax-efficient way to get your new kit.

If you’re in need of a slightly heftier piece of equipment, new premises or other assets, you can take advantage of the Government’s Annual Investment Allowance.

This allowance currently lets businesses write investments in “Plant and Machinery” (things like commercial vehicles, building fixtures and office equipment) for tax purposes. This is set at £1 million permanently.

Let’s say your business has profits of £1 million (you lucky thing). If you spend £400,000 on plant and machinery for your business, currently, the full amount can be subtracted from your profits, reducing them to £600,000. You’d then only pay Corporation Tax on £600,000.

Full expensing and AIA offer significant upfront tax relief by reducing taxable profits, thereby lowering Corporation Tax bills — but they do not reduce Capital Gains Tax or chargeable gains liabilities.

How much does it actually affect your end bill?

If you were going to buy the asset anyway, it’s potentially very effective. For example, if you bought £10,000 of qualifying plant and machinery and were able to claim the full amount against your taxable profits, that could reduce your Corporation Tax bill by up to £2,500 (at a 25% rate). 

However, here’s the crucial bit. Don’t go shopping purely because you want a smaller tax bill, it would be counterproductive. You may save £2,500 in Corporation Tax, but your company has still spent £10,000 meaning they’re £7,500 worse off.

The best time to think about tax relief is before you buy something, not after. If you know your company needs a significant piece of equipment, check what allowances are available and whether the timing of the purchase could affect the tax relief you receive.
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4. Surprise HMRC with an early payment and they’ll owe you interest

That’s right – if you stay on top of your tax affairs and are able to pay your Corporation Tax bill early, HMRC will actually give you some of it back in the form of interest. Find out more in our ‘Benefits of paying Corporation Tax early’ article.

The amount you can receive depends on factors such as how early you pay and HMRC’s applicable interest rate, so it’s worth weighing this up against what else your business could do with the money. 

Now, ok, paying early isn’t a Corporation Tax reduction trick, but it can be a useful thing to do if you’ve got funds sitting in your account. It means HMRC may pay you interest rather than you simply paying and getting nothing back in return. 

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Tip Five: Check your pension contributions

This can be a very effective way for your company to use its profits while potentially reducing its Corporation Tax bill. Rather than automatically taking all available profits as salary or dividends, it’s worth considering whether making an employer pension contribution could be more beneficial for you. 

As with any tax planning, there are rules around what the company can contribute and whether the contribution is deductible, so check the position for your circumstance before making a large payment. 

However, if you have the ability to make a qualifying pension contribution, you could potentially reduce taxable profits by that amount too. For example, a qualifying contribution of £10,000 could reduce your Corporation Tax bill by up to £2,500 (at a 25% rate).

Of course, the money hasn’t disappeared, it has gone towards your pension rather than into your pocket today. So this is most useful if you actually want to put money towards retirement, rather than simply looking for a way to reduce your tax bill.
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Tip six: Check for tax reliefs before you file

Expenses and equipment aren’t the only things that can lower your Corporation Tax bill. Depending on what your company does, there may be other tax reliefs or deductions available.

For example, some companies may qualify for Research and Development (R&D) tax relief if they’ve worked on qualifying innovation or development projects. The important thing is not to assume that a relief doesn’t apply to you because you don’t think your business does any R&D. Often the rules are much more nuanced than that. 

Now, a word of caution. Although the example we’ve listed above R&D tax relief can make a substantial difference to your company’s tax position, you need to be extremely careful. Tax reliefs like this have specific eligibility requirements and claiming something simply because it sounds like it might apply is not a good strategy.

If in doubt, always get professional advice. Getting an accountant like Crunch to do a quick review of your accounts before filing could uncover a legitimate relief or deduction that you simply didn’t know was available.
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Your pre-payment HMRC Corporation Tax checklist

Before you send your Corporation Tax payment, take five minutes to run through this list. You might be surprised by what gets missed:

☐ Have you claimed every business expense?
Go through your business bank account and accounting records rather than relying on memory. Those small expenses can add up.

☐ Have you checked your capital allowances?
Bought equipment, machinery, vehicles or other assets? Check whether AIA, full expensing or another capital allowance applies.

☐ Have you included anything you paid for personally?
If you bought something for the business using your personal card or bank account, make sure it hasn’t been forgotten.

☐ Have you checked your pension contributions?
Make sure any qualifying employer pension contributions have been recorded correctly.

☐ Have you checked your salary and other employment costs?
Make sure everything has been accounted for correctly.

☐ Have you checked your subscriptions and recurring costs?
Software, insurance, professional memberships and other regular professional subscription payments can be easy to overlook.

☐ Could you be eligible for any tax reliefs?
Depending on what your company does, you could be eligible for reliefs or deductions you haven't considered.

☐ Have you checked the timing of any major purchases?
If you're planning to buy equipment or other significant assets, check whether buying before your accounting period ends could affect the tax relief available.

☐ Have you had someone else check it?
If you're unsure, getting an accountant to review your accounts before you file could uncover something you've missed.

So, how much could you actually save?

There isn’t a magic percentage or a single “Corporation Tax hack” that works for every company. The potential savings depends entirely on your circumstances. For example, if you’ve missed £1,000 of legitimate deductions, at a 19% Corporation Tax rate you could save yourself £190 in tax. Miss £10,000 of deductions and the difference could be up to £2,500 at a 25% rate.

That’s why the most effective approach is usually pretty boring. Get your records right, claim what you’re entitled to, and check the calculations before you pay. You don’t want to spend money purely to reduce your tax bill. You do, however, want to make sure you’re not paying tax that you simply don’t need to.

That’s where working with an accountant like Crunch can become your secret weapon. A bit of due diligence, knowledge of the tax system, and a few minutes every week keeping your books up to date could make a meaningful difference to your final bill.

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The secret to lowering your Corporation Tax Bill

So the big secret to lowering your Corporation Tax is that there is no secret – it just takes diligence, a bit of knowledge of the tax system, and a few minutes every month making sure your business expenses are properly recorded.

Make sure you also check out other articles, we regularly publish fresh content designed to help savvy entrepreneurs like you. From making VAT for digital services easy to tried-and-tested marketing strategies to boost your website traffic, we've got you covered!