Tax planning · UK · 2025/26
How to legally reduce your Corporation Tax
Corporation tax is charged on your company's profit, so anything that genuinely lowers profit — or qualifies for relief — lowers the bill. Here are the main legitimate levers in plain English, with a tool that shows the saving.
📘This is education, not advice. Everything here uses reliefs that exist in UK law. Deducting genuine costs and claiming reliefs you qualify for is legal. Disguising personal spending as company costs, or hiding income, is tax evasion — which is illegal. Work with an accountant before acting.
Enter your profit before these steps, then add deductible costs (such as equipment via capital allowances) and an employer pension contribution. The tool uses 2025/26 rates including marginal relief.
Illustration only, using 2025/26 corporation tax rates with marginal relief (single company, no associated companies). Doesn't replace advice. Open the full corporation tax calculator →
The reliefs, explained simply
Each card tells you what it is, who can use it, and what to watch out for — with a link to the official HMRC guidance.
🧾 Claim all allowable expenses
Everyone
The company is taxed on profit, so every legitimate cost reduces it — staff, premises, software, travel, professional fees, marketing and more.
Who: all companies — costs incurred "wholly and exclusively" for the trade.
Watch out: entertaining clients and personal spending generally aren't deductible. Keep clean records.
Official guidance →
🛠️ Capital allowances & full expensing
Everyone
Equipment, machinery and many fixtures can be written off against profit — via the Annual Investment Allowance (up to £1m) or full expensing (100% for qualifying new plant and machinery).
Who: companies investing in qualifying assets.
Watch out: cars and some assets have separate rules; timing the purchase matters.
Official guidance →
🪙 Employer pension contributions
Directors & staff
The company can pay into directors' and employees' pensions, and these are usually a deductible business expense — moving money out of profit tax-efficiently.
Who: companies with directors/employees; popular for owner-directors.
Watch out: contributions must pass the "wholly and exclusively" test and respect the individual's annual allowance.
Official guidance →
⚖️ Salary + dividend mix
Owner-directors
A modest salary is deductible for the company and uses your personal allowance; dividends are paid from after-tax profit but at lower personal rates. The right blend cuts the combined bill.
Who: director-shareholders of their own company.
Watch out: dividends need sufficient retained profit and proper paperwork — see our
dividend calculator.
Official guidance →
🔬 R&D tax relief
Advanced
Companies solving genuine technical or scientific uncertainty can claim enhanced relief on qualifying R&D costs, cutting corporation tax or generating a credit.
Who: companies doing qualifying development work.
Watch out: the rules tightened recently and HMRC scrutinises claims — use a reputable specialist, not a "no win no fee" pusher.
Official guidance →
📉 Employment Allowance & losses
Employers
Eligible employers can cut their employer National Insurance with the Employment Allowance, and trading losses can be carried back or forward to reduce tax in other years.
Who: employers (with conditions); any company with losses.
Watch out: single-director companies with no other employees generally can't claim the Employment Allowance.
Official guidance →
Legal planning vs. illegal evasion
Deducting real costs and claiming genuine reliefs is legitimate. Disguising or hiding is not.
✓ Legal planning
Deducting real business expenses; claiming capital allowances; company pension contributions; a sensible salary/dividend mix; a genuine R&D claim.
✗ Illegal evasion
Putting personal costs through the company; inflating or inventing R&D claims; hiding sales; paying staff cash off the books.
Frequently asked questions
How can a company legally reduce corporation tax?
Claim all allowable expenses, use capital allowances and full expensing, make employer pension contributions, use a tax-efficient salary/dividend mix, claim R&D relief if eligible, and use the Employment Allowance and loss relief.
Are pension contributions deductible for my company?
Yes — employer contributions for directors and staff are normally an allowable expense, as long as they meet the "wholly and exclusively" test and respect annual allowances.
What is marginal relief?
Profits up to £50,000 are taxed at 19% and £250,000+ at 25%. In between, marginal relief tapers the rate, so profit in that band has an effective rate of about 26.5% — which is why deductions there are especially valuable.
Do associated companies change the thresholds?
Yes — the £50,000 and £250,000 limits are shared between associated companies, which can push you into a higher rate. Get advice if you control more than one company.
Related
Educational guide — not tax or financial advice. UK corporation tax for 2025/26, including marginal relief. Reliefs have detailed conditions and change over time. Whether they apply depends on your company's circumstances. Always confirm with
HMRC and a qualified accountant before acting.