- You reduce corporation tax legally by claiming every allowable expense, capital allowance and relief your company qualifies for.
- The 2026/27 marginal relief band between £50,000 and £250,000 carries a 26.5% effective rate, so managing profits in this band matters most.
- Legitimate planning means claiming what you are entitled to, never disguising income or using artificial schemes.
You pay less corporation tax legally by claiming every allowable expense, capital allowance and statutory relief your company qualifies for, then planning the timing of profits and director pay around them.
With the main rate at 25% and a 26.5% effective rate inside the marginal band, the savings are real. Sleek’s accounting and tax service can review your position and apply the reliefs you are entitled to.
This is about legitimate planning, not avoidance. The reliefs below are HMRC-approved and designed to support UK businesses.
A few well-chosen moves, from full expensing to pension contributions, can meaningfully cut your bill.
How is corporation tax worked out in 2026/27?
Corporation tax is charged on your company’s taxable profits, and the rate depends on how much profit you make. The headline position for 2026/27 is unchanged from the April 2023 reform, but the figures still drive every decision below.
Profit band | Rate | Who it applies to |
Up to £50,000 | 19% small profits rate | Smaller companies |
£50,001 to £250,000 | Tapered via marginal relief | Medium-sized companies |
Over £250,000 | 25% main rate | Larger companies |
Profits between £50,000 and £250,000 attract marginal relief, which tapers the rate upward on a sliding scale using a 3/200 fraction. The quirk worth knowing is that each extra pound inside this band is taxed at an effective 26.5%, higher than the 25% main rate above it.
That makes the marginal band the single most valuable place to plan. Keeping profits managed within it, through timing and reliefs, often produces the biggest savings. For the full mechanics, see our guide to the corporation tax rate.
The thresholds are split between associated companies, so groups get proportionally smaller bands.
Diarise your year-end date and review profits two to three months before it. That window gives you time to bring forward a capital purchase or pension contribution while it can still affect the current period, rather than discovering the opportunity once the year has closed.
1. Claim every allowable business expense
Every legitimate business cost reduces your taxable profit, and therefore your corporation tax. HMRC’s “wholly and exclusively” test means the expense must exist solely for the business.
Commonly missed deductions include:
- Use of a home office and a proportion of household bills
- Staff training, subscriptions and professional memberships
- Business mileage and travel
- Professional fees and insurance
- Annual staff event costs within the £150 per head limit
Strong records protect these claims, so keep digital copies of receipts and invoices. For a full breakdown of what qualifies, see our allowable expenses guide.
2. How do capital allowances and full expensing cut your bill?
Capital allowances let you deduct the cost of qualifying assets such as equipment, machinery and tools from your taxable profits. Three routes matter most in 2026/27, and the rules tightened this year.
- Full expensing: 100% relief in the year of purchase on qualifying new, unused main-rate plant and machinery. It continues unchanged for companies and is the most generous route where it applies.
- Annual Investment Allowance: 100% relief on up to £1 million of qualifying expenditure per year, confirmed at that level for the rest of this Parliament. It covers second-hand assets and special-rate expenditure that full expensing does not.
- 40% first-year allowance: a new allowance from 1 January 2026 for main-rate assets where full expensing or the AIA are not available. Cars and second-hand assets are excluded.
A timing change matters here. From 1 April 2026, the main-rate writing-down allowance fell from 18% to 14%, so relief on anything that lands in the main pool is now slower. The special-rate pool stays at 6%.
Tip: bring qualifying purchases inside your year-end where cash flow allows, so the relief lands in the current period rather than the next.
The practical takeaway is to use full expensing or the AIA first, because both give full relief upfront. Only spend that exceeds those routes drops into the slower 14% pool.
3. Should you optimize salary versus dividends?
A tax-efficient mix of salary and dividends remains one of the most effective ways for owner-directors to lower the combined company and personal tax bill. The company gets corporation tax relief on salary but not on dividends, while dividends avoid National Insurance.
A common structure pays a modest salary up to the £12,570 personal allowance, then takes further income as dividends. The salary is deductible for the company, and the personal allowance shelters it from income tax.
Dividend planning got more expensive in 2026/27, which makes the split worth revisiting:
Dividend rate | 2025/26 | 2026/27 |
Basic rate | 8.75% | 10.75% |
Higher rate | 33.75% | 35.75% |
Additional rate | 39.35% | 39.35% |
The dividend allowance stays at £500. The 2 percentage point rise on basic and higher rates from 6 April 2026 means the same dividends now cost more, so the balance between salary, dividends and pension needs a fresh look. Extracting profit efficiently is a topic in its own right, covered in our guide to the most tax-efficient way to withdraw money.
4. Use pensions, R&D and investment reliefs
Employer pension contributions are deductible against profits and exempt from National Insurance, which makes them one of the cleaner ways to reduce taxable profit while building director wealth. Contributions must sit within annual allowance limits to keep their tax advantages.
R&D tax relief rewards companies solving genuine technical challenges, from new software to improved processes. Claims need solid technical and financial documentation, but the returns are significant for qualifying work. Our R&D tax credits service handles the claim end to end.
SEIS and EIS sit on the investment side rather than the company’s own corporation tax, but they matter if you raise external funding. They give your investors generous income tax and capital gains reliefs, which makes your shares far easier to sell. That is an indirect benefit to the company rather than a direct deduction, so treat it as a fundraising tool, not a corporation tax lever.
5. Make marginal relief work for you
Marginal relief is not something you claim, it applies automatically when your profits fall between £50,000 and £250,000. The planning opportunity lies in managing where your profits sit within that band, because the effective rate climbs as you move toward £250,000.
Practical moves that keep profits efficient include:
- Timing a capital purchase or pension contribution before year-end to bring profits down within the band.
- Spreading a large, discretionary cost across two accounting periods rather than one.
- Reviewing associated company structures, since shared thresholds shrink the band for groups.
Because each extra pound in the band is taxed at 26.5%, a deduction that lands inside the band is worth more than the same deduction above £250,000. Whether your company is trading or dormant also affects how the rules apply, as explained in our guide to trading and non-trading corporation tax.
Planning versus avoidance: the line you cannot cross
Legitimate tax planning means claiming the reliefs and allowances Parliament created, in the way they were intended. Tax avoidance means bending the rules through artificial arrangements that have no real commercial purpose, and HMRC challenges it hard.
The distinction is simple in practice. Paying into a pension, claiming R&D relief on genuine innovation, or timing a real asset purchase are all planning. Routing income through artificial structures purely to disguise it is not.
Every relief above depends on eligibility, and the burden of proof sits with you. Keep records for at least six years so you can stand behind any claim if HMRC reviews your accounts. When you stay within the rules, paying less tax is simply good housekeeping.
How Sleek helps with paying less corporation tax
Lowering your corporation tax bill comes down to claiming everything you are entitled to, in the right order, with the records to back it up. The reliefs are generous, but they reward companies that plan ahead rather than scramble at year-end.
Sleek’s accountants review your structure, expenses and reliefs proactively, so you capture full expensing, the AIA, R&D and an efficient salary-dividend split before the deadline, not after.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on how to pay less corporation tax
Can a new company pay less corporation tax in its first year?
Yes. A new company gets the same reliefs as any other, including the AIA, allowable expenses and full expensing. Startup costs incurred up to seven years before trading begins can often be claimed once trading starts, so keep records of pre-trading expenditure from day one.
Does paying myself a higher salary reduce corporation tax?
Yes, because salary is a deductible business expense while dividends are not. A higher salary lowers company profit and therefore corporation tax. The trade-off is employer National Insurance and personal tax on the salary, so the saving is rarely as clean as it first looks and needs modelling.
How do associated companies affect my corporation tax?
The £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. Two associated companies each get a £25,000 lower threshold, not £50,000. This pushes profits into the marginal band sooner, so group structures need careful review before you assume the small profits rate applies.
Can I reduce corporation tax by buying equipment before year-end?
Yes, if the purchase qualifies for full expensing or the AIA, the full cost reduces that year’s taxable profit. Timing the purchase before your accounting period ends brings the relief forward by a full year. Make sure the asset is genuinely needed, not bought purely to cut tax.
What happens if I pay corporation tax late?
HMRC charges interest on late payments from the due date, currently several percentage points above base rate. Persistent late filing of the CT600 also triggers automatic penalties starting at £100. Paying early can earn modest credit interest, so the incentive runs in the opposite direction.
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Do charitable donations reduce my corporation tax bill?
Yes. Qualifying donations of money, equipment, shares or land to UK-registered charities are deductible against profits. Donating appreciated assets can be especially efficient, since you claim relief on market value and avoid a capital gains charge on disposal. Keep evidence of every donation in your accounts.
Is it legal to pay no corporation tax at all?
No company can simply opt out, but paying nothing is possible in a loss-making year or when reliefs reduce taxable profit to zero. That is legitimate when it results from real losses or genuine reliefs. It crosses into evasion only when income is hidden or arrangements are artificial.
