How to reduce Corporation Tax? (2025/26 Guide)

Last updated: April 06, 2026

Limited companies pay corporation tax (CT) on their annual profits. Being aware of all lawful ways to reduce your tax bill through the many types of tax relief available is the way forward since non-compliance is a path that frequently ends in calamity.

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Seeking the advice of an accountant with expertise in business law and tax will ensure you maximise savings while remaining compliant.

At DNS Cloudco, we always advise taking the compliance path. Here, we offer readers a detailed map to tax-deductible business expenses and the most tax-efficient ways to maximise capital allowances for the 2025–26 tax year. We recommend investment in research and development and look at how different employment schemes can attract tax credits and protect your staffing levels simultaneously.

Getting professional tax advice to ensure savings in your CT bill while remaining compliant is advised. If your business is currently outside the scope of corporation tax, you might consider incorporating your business to take advantage of the wider range of allowable business expenses and tax-planning opportunities available to limited companies.

Key Takeaways

Leverage Full Expensing: Claim a 100% first-year tax deduction on new qualifying equipment to immediately lower your taxable profit.
Make Employer Pension Contributions: These are a fully tax-deductible business expense, directly reducing your final Corporation Tax bill.
Claim R&D Tax Relief: If your company invests in innovation, you can claim valuable tax credits on qualifying projects under the new merged R&D scheme.
Utilise the Employment Allowance: Reduce your annual employer National Insurance bill by up to £10,500 for the 2025/26 tax year.
Opt for Electric Vehicles (EVs): Benefit from an ultra-low Benefit-in-Kind (BIK) tax rate of just 3% for company cars, a highly tax-efficient choice.
Seek Professional Advice: An accountant will identify all reliefs specific to your business, ensuring you maximise savings while remaining fully compliant.

Note : This article has been updated and republished on 06 April 2026 to include the latest information about Corporation Tax.

How much is corporation tax?

For the 2025/26 tax year, Corporation Tax rates are as follows:

Taxable Profits	CT Rate
£50,000 or below	19% (Small Profits Rate)
£50,001 – £250,000	25% reduced by Marginal Relief (effective rate up to 26.5%)
Above £250,000	25% (Main Rate)

The Marginal Relief calculation gradually increases your effective CT rate between 19% and 25% – meaning companies in this band can pay an effective rate higher than both the Small Profits Rate and the Main Rate.

When is Corporation Tax due?

For companies with annual profits under £1.5 million, CT must be paid 9 months and 1 day after the end of your accounting period. Your CT600 return must be filed with HMRC within 12 months of the accounting period end. Late payment attracts interest charges – currently at HMRC’s standard rate.

Between these two rates, a system of marginal relief applies, calculated as follows:

Say your annual profit is £80,000 in the 2025–26 tax year:

Multiply your annual profit by the main 25% rate = £20,000.
Subtract your annual profit from the £250,000 threshold = £170,000.
Multiply step 2 by the marginal rate multiplier of 3/200 = £2,550.
Subtract step 3 from step 1: £20,000 – £2,550 = £17,450.

In this example, corporation tax will be £17,450, representing a tax increase over the small profits rate. This means there is an effective CT rate of around 26.5% between £50,000 and £250,000.

Compliant ways to reduce CT liability are something every business should explore. Paying the least amount of tax possible compliantly means having a long-term and informed strategy.

So, let’s now look at the top five ways to reduce CT within the current system lawfully and compliantly.

What are some ways to reduce Corporation Tax?

Below are just five of the many ways to reduce your corporation tax liability compliantly depending on circumstances.

(1) Corporate tax planning

In business, corporate taxes are a large part of your trading costs, hence why tax planning is the framework holding together your structure for business growth. Running and growing a business is hard work, the success and, hopefully, the expansion of your business probably is and should be your priority, but there’s a work-life balance to achieve too.

Corporate tax planning is about having ongoing, long-sighted, and year-round insight into the company’s financial health and well-being. This type of planning should form part of your business plan and act as the linchpin of your business’s financial strategy and plans for growth.

Hiring a small business tax specialist or accountant is the first step to reaping considerable gains and saving on corporation tax. An online accountant like DNS Cloudco will, among many other services, be able to advise on business decisions that affect your finances, generate financial statements, reports and forecasts, calculate your tax, and prepare your returns.

Using a qualified accountant significantly reduces the risk of miscalculations, errors, and late filing penalties – and accountancy fees themselves are a legitimate, tax-deductible business expense.

Plus, accountancy fees are a legitimate business expense that no business can afford to ignore since, in addition to lowering your CT bill, their expertise will introduce ways to reduce tax compliantly.

A qualified accountant will identify available tax reliefs and ensure your company remains fully compliant – protecting both your finances and your company’s reputation. Besides, what business owner needs the tiresome and time-consuming task of accounting when their focus should be on managing the business? Hence, we have put corporate tax planning at the top of this list!

Managing corporation taxes correctly positions your business for growth. Tax law is complicated, so ideally you will know the rules and the law by heart. While online bookkeeping and accounting software is a fantastically useful tool, it’s not able to tutor you on all the legal rules around tax, which are tricky and constantly changing.

Opportunities for maximising corporation tax savings for limited companies are as easy to miss as the pitfalls that can land you in trouble. It is easy to misunderstand the rules unless you have accounting qualifications and know-how.

All of this makes a strong case for putting your business’s finances in the expert hands of an accountant like the DNS CloudCo. We help hundreds of small businesses and owner-managed limited companies make advanced plans to manage CT efficiently.

Our expert corporate tax planning services include:

Establishing the most tax-efficient business structure
Planning corporate tax efficiently according to business circumstances
Setting up payroll and employee benefits
Assistance in VAT planning
Identifying tax-efficient opportunities and available tax relief
Optimising capital or revenue tax
Capitalising on acquisitions relief using capital allowances
Reducing tax liability on disposals
Assistance with overseas business ventures
Maximising business tax benefits per your industry
Compliance with tax return legislation including CT self-assessment
Interacting and acting on your behalf with HMRC as required

Corporate tax mitigation is not a short-term fix it is a long-term strategy. The objective is to achieve maximum gains involving revenue taxes, CT, capital gains tax, and inheritance tax. Work in this area can include VAT, national insurance contributions, and stamp duty as well, but a more common tax planning technique is to increase available cash in the business for investment or working capital.

A useful tip as year-end approaches is to bring forward any proposed expenditures to the current tax year instead of waiting until the following year.
Taking all the tax credits your business is eligible for is another seemingly simple strategy many overlook simply because no expert had identified or explained the opportunity before.

(2) Pension contributions

Tax relief on employer pension contributions is a straightforward way to achieve a deduction from profits, allowing the sums deducted to be a legitimate business expense. Hence, pensions are one of the most efficient ways for businesses to reduce their CT bill (and for employees, one of the best ways to save money for the future tax-free).

Companies’ deductions for employee or director pensions must be made via payroll from total profits before the accounting period ends. Deductions are allowed only in the chargeable period in which contributions are paid and cleared – accrued liabilities do not qualify.
For 2025–26, the annual pension allowance remains at £60,000 for most individuals, subject to tapering if income is above £260,000. Pension advice costs up to £500 per employee a year remain exempt from tax and National Insurance.

Employers should consider the personal tax position of employees and directors before making large contributions. There is a process to decide if spreading relief for large contributions is needed; the Pension Tax Manual and an accountant can provide detailed guidance.

(3) Benefit-in-kind (BIK)

Different BIK rules apply depending on the benefit type (company cars, health insurance, travel, childcare).

For vehicles:

Vehicles strictly for business use (e.g., trucks) have no BIK and are accounted for as capital expenses.
Vans used for business and private purposes incur a fixed BIK rate on the vehicle and on fuel.
Cars used privately and for business incur BIK based on list price, emissions, and fuel type, not actual private use.
Fully electric vehicles (zero emissions) carry a BIK rate of just 3% for 2025/26, rising to 4% from April 2026. This remains significantly below the rate for petrol and diesel vehicles, which can reach 37% depending on emissions.
“Pool cars,” shared among employees for business use and kept on company premises, are exempt from BIK.

(4) Claiming expenses against Corporation Tax

Expenses claimed must be incurred ‘wholly and exclusively’ for business. Records and receipts must be kept digitally or physically for at least six years.

Popular allowable expenses include:

Accommodation and subsistence on business travel (reasonable costs, no set limits, apply overseas rates when relevant)
Accountancy fees related solely to company accounts (not personal tax returns; personal elements must be declared as BIK and attract employer NIC at 15% (from April 2025).
Advertising and marketing (including PR, websites, networking)
Bank and overdraft charges that are authorised (interest on business loans and authorised bank account charges)
Business mileage for employees using their vehicles at HMRC-approved rates; VAT reclaim usually possible
Business publications, subscriptions to HMRC-approved professional or trade bodies
Relevant business insurances (professional indemnity, employer’s, public liability)
Purchase and maintenance of business vehicles and equipment qualifying under capital allowances or Annual Investment Allowance (AIA is £1 million).
Full Expensing: Since April 2023, UK limited companies can deduct 100% of the cost of qualifying new plant and machinery in the year of purchase – with no upper cap. This goes beyond the £1 million AIA limit and can significantly reduce your CT bill in the year of investment.
Charitable donations to approved charities (monetary, land, property, equipment, sponsored events)
Childcare schemes including Tax-free Childcare and workplace nursery costs
Staff Christmas parties and other events within HMRC limits (£150 per head maximum)
Work clothing required for specific roles (e.g., uniforms, protective wear)
Incorporation and pre-trading expenses (within 7 years prior to trading)
Entertainment and hospitality strictly limited, mainly for overseas business clients
Equipment and office technology (computers, printers, software)
Eye tests and glasses for employees using display screens regularly
Food and subsistence on business trips (if away longer than five hours)
Gifts and trivial benefits (up to £50 per employee per event, within strict rules)
Home office costs (flat rate £6 per week or actual costs with evidence)
Hire purchase agreements in company name
Business phone, landline, and broadband costs
Private health insurance and annual health assessments (health assessments tax-free if offered to all staff; private medical insurance is a taxable BIK with NIC)
Professional subscriptions to HMRC-approved bodies
Staff training that improves current job skills (overseas training limited and highly scrutinised)
Relocation expenses if incurred due to work moves
Relevant life insurance policies, providing tax-free lump sums upon death or terminal illness
Salaries and employer NIC up to national insurance thresholds (currently £12,570 personal allowance and £12,570 NIC threshold)
Employment Allowance – From April 2025, eligible employers can claim up to £10,500 per tax year to reduce their employer NIC bill (increased from £5,000). For many small limited companies, this can eliminate the employer NIC liability entirely – a direct saving that also reduces your overall tax costs. Note: Companies where the sole employee is also the only director are not eligible to claim Employment Allowance.
Stationery, postage, printing for business use

(5) Research and Development

The R&D scheme supports companies advancing knowledge or capability in science or technology.

From 1 April 2024, the old SME and RDEC schemes were merged into a single regime. Under the merged RDEC scheme, all companies can claim a taxable above-the-line credit of 20% of qualifying R&D expenditure – equating to a net benefit of approximately 15%–16.2% after tax. Loss-making SMEs that spend at least 30% of their total expenditure on R&D may qualify for the Enhanced R&D Intensive Support (ERIS) scheme, which offers enhanced relief of up to 27%.
Projects may include new products, processes, or services, or improvements on existing ones across many sectors.
Claims must be submitted digitally and include detailed technical justifications and financial records.
Claims must be made within two years of the CT accounting period end.
Expert help from accountants familiar with R&D claims is strongly recommended.

How to apply for R&D tax relief?

We recommend that businesses should seek expert help from their accountant when applying for R&D tax relief. Alternatively, R&D claims must be submitted digitally via the updated CT600 and accompanying Additional Information Form (AIF). HMRC must be notified within six months of your accounting period end if your company is a new claimant. Speak to an accountant or visit GOV.UK for the current claim process.

Having notified HMRC, the business must then explain their reasons for a specific R&D activity to qualify for a tax relief. The time range within which a business must apply for relief is two years after the end of the CT accounting period. If a business believes that it qualifies for a R&D tax credit claim, it must be able to show adequate reasoning and records for the project.

Conclusion

Here we have provided many different ideas on how to reduce your CT bill and how to benefit your business with some great incentives for growth and to attract and retain the best staff.

Without any bias or obligation, we have tried to clarify the importance of having a trained professional – an accountant or tax specialist – at your side to help your business run efficiently, compliantly, and effectively.

Compliance with the UK tax system should be your number one priority, for little is possible in terms of pursuing any of these reliefs or tax credits, let alone investment opportunities, unless you have lifted the weight and worry of any hint of non-compliance.

DNS Cloudco gives businesses control by lifting the burden of bookkeeping and accounts. Business growth is what we aim for with our clients by providing Xero software to help you keep your books in good order and then providing our expertise to reinforce your business.

Our objective is not just to reduce your CT bill in all lawful ways, but to always be on hand with advice and ideas and with an eye to the future, always looking to how we can help you manage your business tax, finances, and policies and procedures better. Contact us today, for tax advice and CT accountancy services.

All Company Tax rates and reliefs are based on the 2025/26 tax year. For personalised tax advice, consult a qualified UK accountant. DNS Cloudco provides specialist corporation tax planning services for UK limited companies.

FAQs

How to reduce corporation tax?

There are multiple ways to reduce the corporation tax depending on different circumstances like corporate tax planning, pension contributions, Benefit in Kind (BIK) and more.

How to avoid corporation tax?

You cannot legally avoid Corporation Tax if your company has taxable profits. However, you can significantly reduce your CT bill through legitimate reliefs – such as capital allowances, pension contributions, R&D credits, and claiming all allowable expenses. The goal is legal reduction, not avoidance

How to lower corporation tax?

The most effective ways to lower your Corporation Tax bill include: maximising allowable business expenses, making employer pension contributions, investing in R&D, using Full Expensing or AIA for equipment purchases, and working with a qualified accountant to identify reliefs specific to your business.

How can I reduce my corporation tax bill?

There are several legitimate ways to reduce CT: claim all allowable business expenses, make employer pension contributions, use capital allowances (including Full Expensing on new equipment), invest in R&D, and plan your salary and dividends efficiently. A qualified accountant can identify additional reliefs specific to your circumstances.

How much is corporation tax in 2025/26?

For the 2025/26 tax year, the Small Profits Rate is 19% for companies with taxable profits of £50,000 or less; the Main Rate is 25% for companies with taxable profits above £250,000. Companies with profits between £50,001 and £250,000 pay the main rate, reduced by marginal relief, with an effective rate that can reach up to 26.5%.

When is corporation tax due?

For small companies with profits under £1.5 million, CT is due 9 months and 1 day after the company’s accounting period ends. Your CT600 return must be filed within 12 months of the accounting period end.

Can employer pension contributions reduce corporation tax?

Yes. Employer pension contributions are a deductible business expense and can reduce your taxable profits – directly lowering your CT bill. Contributions must be paid during the accounting period to qualify for relief in that year.

Does my company qualify for R&D tax relief?

If your company invests in projects that advance science or technology – including new products, processes, or software – you may qualify. The merged RDEC scheme applies to all companies for accounting periods beginning on or after 1 April 2024. The credit is worth 20% of qualifying expenditure, with a net benefit of approximately 15–16.2% after tax. Specialist advice is strongly recommended.

If you’re interested in learning more about tax-saving strategies, check out our helpful blogs:

Divyanshi Patel

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Divyanshi is a subject matter expert in the UK accounting space, creating clear and easy-to-read content for accountants and businesses. She covers topics such as VAT returns, Self-assessment tax, bookkeeping, business planning and Year-end accounts. By understanding the common challenges faced by accountants and business owners, she focuses on writing content that answers real questions and simplifies complex topics. Her approach keeps information clear, relevant and useful for everyday business needs.