If your limited company is profitable, knowing how to reduce your corporation tax bill legally should be part of how you think about the business year-round — not something you hand to an accountant three weeks before the deadline and hope for the best.

The rate structure changed significantly in April 2023 and the position has hardened since. Companies with profits above £250,000 now pay 25%, and even smaller companies sitting in the £50,000–£250,000 band face a tapered effective rate. For a company turning a healthy profit, that’s a meaningful cost — and there’s no shortage of legitimate ways to reduce it that many owner-managed businesses simply don’t claim.

What follows is how we approach this with clients. Some of it is well known. Some of it gets missed because it sits in the detail of how you structure a year, rather than anything exotic.

Before you can plan effectively, you need to know where your profits sit in the rate structure. For 2026/27, the small profits rate is 19% for companies with taxable profits under £50,000. The main rate is 25% for profits above £250,000. Between those two figures, Marginal Relief applies — your effective rate tapers between 19% and 25% depending on where your profits land.

That taper matters because it changes what’s worth doing. A company sitting at £80,000 of taxable profit is paying an effective rate somewhere in the mid-twenties. Bringing that profit down to £50,000 through legitimate deductions drops you to the small profits rate entirely — and that’s a real saving, not a marginal one.

One thing that often catches directors off guard: if your company has associated companies, the Marginal Relief thresholds are divided between them. Four companies in a group means the lower limit drops to £12,500 and the upper limit to £62,500. If that’s your situation, it’s worth running the numbers carefully rather than assuming the standard thresholds apply.

The writing-down allowance on plant and machinery also changed from April 2026, dropping from 18% to 14% on the main rate pool — which makes the capital allowances picture slightly different to plan around than it was a year ago.

This sounds obvious, but the number of companies that arrive at year-end with expenses sitting in personal bank accounts, undocumented mileage, or unrecorded home office costs is higher than you’d expect. Every legitimate business expense you fail to claim is profit HMRC taxes you on.

Common ones that get missed or underclaimed:

• Mileage at HMRC’s approved rates when using a personal vehicle for business travel
• Use of home as office — either the flat-rate allowance or a proportion of actual costs where the numbers justify it
• Professional subscriptions, trade body memberships, and relevant training
• Accountancy, legal, and professional advisory fees (yes, including what you pay us)
• Equipment, software, and tools used for the business
• Business insurance premiums

The principle is straightforward: if the expense was incurred wholly and exclusively for the purposes of the trade, it’s deductible. Where personal and business use overlap — a phone contract, for instance — you can claim the business proportion.

Good bookkeeping through the year is what makes this reliable. If your records are a folder of unprocessed receipts in March, you’ll miss things. Keeping your Xero (or equivalent) up to date means nothing slips.

If your company is investing in plant, machinery, or equipment, capital allowances are one of the most direct ways to reduce taxable profit in the year of purchase.

Full expensing allows companies to deduct 100% of the cost of qualifying main rate plant and machinery in the year they buy it, rather than writing it down over multiple years. That means a £20,000 equipment purchase can reduce your taxable profit by £20,000 in the same accounting period — which at the main rate saves you £5,000 in Corporation Tax.

From 1 January 2026, a new 40% first-year allowance also came into force for main rate plant and machinery. This one is specifically available for assets bought for leasing, and it also extends to unincorporated businesses that don’t qualify for full expensing. If you’re leasing equipment to others or you’re a sole trader investing in kit, this is worth knowing about.

The timing of purchases can make a real difference here. Buying a qualifying asset just before your accounting year-end means the deduction falls in the current year’s return. Buying it just after pushes it into next year. If you’re planning a significant investment anyway, talking to your accountant about timing before you commit makes sense — it’s the kind of thing that’s straightforward to plan for and harder to go back and fix.

Employer pension contributions made by your company are a deductible business expense, which means they reduce taxable profit directly before Corporation Tax is calculated. This is one of the most tax-efficient ways for a director-shareholder to build personal wealth — you’re funding a pension with pre-tax company money rather than taking the profit out, paying Corporation Tax, and then contributing from post-tax income.

The arithmetic is straightforward. If your company contributes £10,000 to your pension, that £10,000 is deducted from taxable profit. At 25%, that’s a £2,500 reduction in your Corporation Tax bill, and the full £10,000 lands in your pension fund.

There are limits to be aware of. The annual allowance caps total pension contributions (employer and employee combined) at £60,000 per tax year, or 100% of your relevant UK earnings if lower. Contributions also need to pass the ‘wholly and exclusively’ test — HMRC expects employer contributions to be commercially reasonable given your role and salary, so very large contributions relative to what the role would command in the open market can attract scrutiny.

For most owner-managed company directors, there’s often significant unused pension allowance from prior years that can be carried forward. If you haven’t been maximising employer contributions, it’s worth reviewing what headroom you have before the year-end.

How you extract profit from the company affects both your personal tax position and, indirectly, the Corporation Tax picture. The standard approach for a director-shareholder is a salary set at roughly the National Insurance primary threshold, topped up with dividends from post-tax profit. The salary is a deductible business expense; dividends come out of profit after Corporation Tax has been paid.

Getting the salary level right matters. Too low, and you lose the Corporation Tax deduction on the difference. Too high, and you’re paying employer’s National Insurance on salary that could have come out as a dividend at a lower combined tax cost. We look at this for every director client at the start of each tax year, not just once when they incorporate.

Timing also has a role. If your company has had an unusually strong year and you’re sitting on profit well above £250,000, it’s worth asking whether there are acceleratable deductions — qualifying expenditure, pension contributions, prepaid expenses — that could legitimately reduce the taxable figure before year-end. Conversely, if profits are lower than expected and you’re comfortably in the small profits band, the urgency is different.

None of this is aggressive planning. It’s just using the rules as they’re written, which is what a good accountant should be doing as standard. The problem is that without someone actively looking at the year-end picture two or three months before it closes, these opportunities are easy to miss.