Most limited companies pay more corporation tax than they need to, not because of anything illegal, but because reliefs, allowances and timing opportunities are underused. Here’s what actually moves the needle.
Corporation tax is currently charged at up to 25% on company profits, with a lower 19% rate for smaller profits and marginal relief in between. Many directors treat this rate as fixed and unavoidable but the taxable profit figure it’s applied to is rarely optimised.
Common reasons companies overpay:
Equipment, machinery, and certain building costs can often be written off against profit faster than standard depreciation allows, directly reducing your corporation tax bill in the year you invest.
How a director is paid affects the company’s taxable profit, not just personal tax. Employer pension contributions, for example, are usually an allowable business expense reducing corporation tax while building personal retirement wealth outside of dividend or salary limits.
Companies carrying out qualifying development work, including in sectors that don’t consider themselves “R&D-heavy” can often claim enhanced relief on related costs.
Bringing forward planned expenditure, or adjusting the timing of invoicing near a year-end, can shift taxable profit between accounting periods in a way that reduces the overall tax paid.
Companies operating through multiple entities may be able to offset losses or share reliefs across the group, rather than each entity being taxed in isolation.
(Illustrative only) A company with £150,000 in annual profit, structured without any specific tax planning, could easily be paying several thousand pounds more in corporation tax each year than an equivalent company that has reviewed its allowances, remuneration structure and expenditure timing. The exact figure always depends on individual circumstances.
This page provides general guidance and does not constitute tax advice. Individual circumstances vary, speak to a specialist adviser before making decisions.
Is corporation tax reduction the same as tax avoidance? No. Using reliefs and allowances that Parliament has specifically created capital allowances, pension contributions, R&D relief is standard, legitimate tax planning, not avoidance.
Do I need to change accountants to do this? Not necessarily. Tax planning of this kind usually sits alongside your existing accountant’s compliance work rather than replacing it.
Is this relevant if my company is inside IR35? Some of these reliefs still apply, though the position is more limited. It’s worth a review either way.
How much could my company actually save? This depends entirely on your profit level, sector, expenditure and structure. A proper review is the only way to know your specific position.
If you haven’t reviewed how your company’s profit is taxed in the last year or two, there’s a good chance you’re leaving money on the table. Ready to review your corporation tax position? Get in Touch using the form below.
