One of the most common questions we hear from limited company directors is some version of: “Am I paying more corporation tax than I need to?” Often the honest answer is yes, not because they’ve done anything wrong, but because no one has sat down and looked at the available options with them.

Knowing how to reduce your corporation tax bill legally is not about exploiting loopholes or using schemes HMRC is already scrutinising. It is about making sure your company claims everything it is entitled to, structures director remuneration sensibly, and plans around the financial year rather than scrambling after it has closed.

The steps below are things we work through routinely with clients. None of them are exotic. Most are simply good practice that, applied consistently, add up to a noticeably lower tax charge year after year.

Before looking at how to reduce your bill, it helps to understand what rate applies to your company. As of 1 April 2026, the small profits rate is 19% for companies with taxable profits under £50,000. Companies with profits above £250,000 pay the main rate of 25%. If your profits sit between those two figures, marginal relief applies and your effective rate tapers gradually between the two.

Marginal relief is worth understanding if your profits are in that middle band. The calculation uses a standard fraction of 3/200, applied to the difference between the upper limit and your augmented profits. It sounds technical, but the practical point is this: companies in the £50,000 to £250,000 range face an effective marginal rate of around 26.5% on the profits that sit within the band, which is higher than the headline 25% and worth factoring into planning.

One thing that catches directors out is the associated companies rule. If your company has associated entities (including dormant ones, and in most cases non-UK resident companies you control), the profit thresholds are divided equally between them. That can pull a company with modest profits into a higher effective rate band than expected. If you run more than one company, it is worth checking whether this applies.

This sounds obvious, but it remains the area where most companies leave money on the table. A legitimate business expense reduces your taxable profits, which in turn reduces the tax you owe. The question is not whether to claim expenses, but whether you are capturing all of them accurately.

Common items that get missed or underclaimed include:

• Home office costs, where a director works partly from home (using HMRC’s flat rate or a calculation based on actual use)
• Mileage and travel costs for business journeys
• Professional subscriptions, trade memberships, and relevant software
• Training and continuing professional development directly related to the business
• Accountancy, legal, and professional fees (including the cost of preparing your tax return)
• Equipment and technology used for business purposes

The key is that the expense must be wholly and exclusively for business purposes. Mixed-use items can still be partially claimed, but the private element needs to be excluded. Good record keeping matters here: HMRC is more likely to ask questions where records are thin, and maintaining accurate documentation throughout the year is a lot easier than reconstructing it later.

If your bookkeeping is not keeping pace with your activity, that is worth fixing. Expenses claimed late, or not at all, mean a higher tax bill than the business actually owes.

Employer pension contributions made by your company are a genuine, HMRC-approved method of reducing taxable profits. The company pays the contribution directly into your pension scheme, the payment is treated as a business expense, and it reduces the profit on which corporation tax is charged.

For a director-shareholder who might otherwise take additional income as salary or dividends, routing some of that value into a pension is often significantly more tax-efficient. Dividends are paid from post-tax profits and are not deductible for corporation tax purposes. A pension contribution made by the company, on the other hand, reduces profits before tax is calculated.

The limits to be aware of are the annual allowance (currently £60,000 per tax year across all pension contributions, employer and personal combined) and the requirement that the contribution must be wholly and exclusively for the purposes of the trade, which for a working director is generally straightforward to satisfy.

This is one of the planning conversations we have most often with owner-managed businesses, and the difference over several years can be substantial. If you are not making employer pension contributions and your company has profits you would otherwise be drawing as income, it is worth looking at closely.

The split between salary and dividends is a familiar topic, but it is directly relevant to your corporation tax position. Salary paid to a director is a deductible business expense, which reduces company profits and therefore the corporation tax charge. Dividends are not deductible: they come out of post-tax profits.

The most tax-efficient structure for most director-shareholders involves a salary set around the National Insurance primary threshold (which avoids employee NICs and triggers the employment allowance position) combined with dividends for the remainder of income drawn. The salary component reduces taxable profits; the dividend component does not, but it avoids the employer and employee NIC costs that a higher salary would attract.

There is no single right answer here. The optimal mix depends on your profit level, whether there are other employees, the marginal rate your company is paying, and your personal income tax position. What is clear is that getting this wrong in either direction costs money: too much salary and you are paying NICs unnecessarily; too little and you are missing a legitimate deduction against profits.

We have written more on this in our post on salary versus dividends, which is worth reading alongside this one.

Two further areas that are worth planning around are the timing of income and expenditure, and the use of capital allowances.

Timing

Your corporation tax charge is based on profits in the accounting period. If you can bring forward planned expenditure into the current period (for example, renewing a software licence, purchasing equipment, or paying a bonus before the year end), that reduces the taxable profit for that year. Equally, where possible, deferring income recognition until the following period can lower this year’s charge. These are not tricks; they are legitimate accounting decisions, but they need to be made before the year end closes, not after.

Capital allowances

When your company purchases assets such as equipment, machinery, or fixtures, the full cost does not always reduce profits in one go under standard accounting treatment. Capital allowances, in particular the Annual Investment Allowance (AIA), allow most businesses to deduct the full cost of qualifying plant and machinery in the year of purchase, up to the AIA limit (currently £1 million per year). This can bring a meaningful reduction in taxable profits in the year you invest, which is worth factoring into decisions about when to buy significant assets.

Getting this right requires knowing what qualifies, what does not, and how it interacts with the rest of your profit position. It is the sort of thing that is straightforward with a bit of planning and genuinely costly when overlooked.