- Corporation tax runs at 19% up to £50,000 and 25% above £250,000.
- Every route here is a statutory relief, not a scheme or an arrangement.
- R&D relief and timing are where most companies get a claim refused.
You can pay less corporation tax by paying yourself through an efficient mix of salary and dividends, claiming every allowable expense, using capital allowances on equipment, making employer pension contributions, claiming R&D relief where you genuinely qualify, and timing costs into the right accounting period.
Every one of those is a statutory relief, not an arrangement. Which apply to you depends on your profit, whether you have staff, and what you spend on.
So the mix that suits a one-director consultancy is not the mix that suits a company with employees and equipment. If you want someone to check your specific numbers, a corporation tax accountant can tell you which reliefs you are using and which you are leaving on the table.
The reliefs below run smallest company first. If you run a one or two-director company, the early sections are the ones that move your bill.
If you have staff and buy equipment, read on to the capital allowances and employment allowance sections. Either way, you can stop when your question is answered.
How can you legally pay less corporation tax?
You pay less by using the reliefs Parliament put in the tax code for exactly this purpose. That means drawing income in the most efficient way, deducting everything the rules let you deduct, claiming relief on the assets you buy, putting money into a pension through the company, and claiming R&D relief if you do qualifying work.
None of this is aggressive. It is the difference between a company that reads its own tax return and one that pays whatever the software spits out. The rate you are trying to reduce is the corporation tax rate that applies to you: 19% on profits up to £50,000, 25% on profits above £250,000, and an effective rate rising from 19% to 25% in between through marginal relief [HMRC, gov.uk, fetched 22 Sep 2026].
One quirk is worth knowing. Each extra pound of profit between £50,000 and £250,000 is taxed at 26.5% at the margin, which is higher than the main rate itself [HMRC, gov.uk, fetched 22 Sep 2026]. That is why the reliefs below are worth most to a company sitting in that band.
Is reducing corporation tax the same as avoiding it?
No, and the difference matters. Reducing tax means using reliefs the law provides, on the terms the law sets. Avoiding tax means building an arrangement whose main purpose is to sidestep a charge Parliament intended you to pay.
This article only covers the first kind. Every route below is a named statutory relief with published conditions. If a scheme promises to cut your bill through a structure that exists mainly to cut your bill, that is a different conversation and not one we are having here.
Can your salary and dividend mix reduce corporation tax?
How a director takes money out of the company changes what the company and the director pay between them. For most owner-managed companies the efficient answer is a modest salary plus dividends, though the exact split depends on your other income and the company’s profit.
This has its own guide, because it turns on personal tax as much as corporation tax. See our guide to paying yourself through salary, dividends or both for the full working. The short version: salary is deductible for the company and dividends are not, but dividends avoid National Insurance, so the balance is a calculation rather than a rule of thumb.
One thing to note for planning. Dividend tax rates rose by two percentage points in April 2026, so a salary-and-dividend split that was optimal two years ago may not be today [HMRC, gov.uk, fetched 22 Sep 2026]. It is worth re-running the numbers each year rather than setting the split once and forgetting it.
Which allowable expenses cut your corporation tax bill?
The most common way a company overpays is by not claiming costs it is allowed to claim. An expense is deductible if it is incurred wholly and exclusively for the trade, and the ones businesses miss are rarely the obvious ones.
The costs owners routinely leave out include use of home as office, mileage, professional subscriptions, training that maintains an existing skill, and pre-trading expenses from the period before the company started trading. The full list, with the conditions attached to each, is in our guide to what a limited company can claim as an expense.
The test is always the same. The cost has to be for the business and only the business. A cost with a private element, like a phone used for both, is either apportioned or disallowed, never waved through in full.
Do company pension contributions reduce corporation tax?
For a director, an employer pension contribution is often the most efficient pound the company can spend. The company pays into a registered pension scheme, the contribution is deductible against corporation tax, and it avoids National Insurance on both sides.
Unlike a personal contribution, an employer contribution is not capped by your salary. It is limited by the annual allowance, which is £60,000 for 2026/27, before any carry-forward of unused allowance from the previous three years [HMRC, gov.uk, fetched 22 Sep 2026]. That is what makes it work for directors on a low salary and dividends.
There is a condition. The contribution has to pass the same wholly and exclusively test as any other cost, which for a controlling director means the total package has to make commercial sense as pay for the work done. HMRC says contributions normally pass, but a large contribution against a token salary is exactly the kind of thing a review looks at, so it is one to size with an accountant rather than guess at.
Timing a big cost before your year end?
How do capital allowances reduce your corporation tax?
When you buy equipment, you usually cannot deduct the whole cost as an expense. You claim capital allowances instead, and for most small companies the annual investment allowance does the heavy lifting.
The annual investment allowance gives 100% relief on up to £1 million of qualifying plant and machinery each year, so for the vast majority of companies the full cost of equipment comes off profits in the year of purchase [HMRC, gov.uk, fetched 22 Sep 2026]. Full expensing gives companies unlimited 100% relief on new and unused main-rate equipment on top of that, and a new 40% first-year allowance applies to qualifying main-rate assets bought from 1 January 2026 [HMRC, gov.uk, fetched 22 Sep 2026].
Two points catch people out. Cars almost never qualify for the annual investment allowance or full expensing, and the main-pool writing down allowance dropped from 18% to 14% from 1 April 2026, so anything that falls into the pool now unwinds more slowly [HMRC, gov.uk, fetched 22 Sep 2026].
Does R&D relief cut corporation tax, and who qualifies?
R&D relief is real money for companies doing qualifying work, and a fast route to an HMRC enquiry for companies that are not. Claims fell 26% in a year as the rules tightened, so the honest question is not how to claim but whether you qualify at all [HMRC R&D statistics, fetched 22 Sep 2026].
You qualify if you are seeking an advance in science or technology and resolving a genuine technical uncertainty that a competent professional in the field could not readily work out. Routine software configuration, applying known techniques, and cosmetic product changes do not count, however much effort they take. If you cannot name the technical uncertainty, you probably do not have a claim.
For companies that do qualify, most claim under the merged scheme, which gives a 20% above-the-line credit on qualifying spend, worth roughly 15% net after corporation tax [HMRC, gov.uk, fetched 22 Sep 2026]. Loss-making companies that are R&D-intensive, broadly where qualifying R&D is at least 30% of total expenditure, can instead claim enhanced support at a higher payable rate [HMRC, gov.uk, fetched 22 Sep 2026].
Either way there is now a mandatory Additional Information Form, and first-time claimants must notify HMRC in advance, so a late or unnotified claim can be refused on process alone. This is one to run through R&D tax credits support rather than attempt cold.
Can the employment allowance lower your bill?
If you employ people, the employment allowance reduces the employer National Insurance your company pays. It is not a corporation tax relief in itself, but it lowers a real cost, which lowers the bill that flows through to your accounts.
The catch that trips up the smallest companies is the single-director rule. A company whose only employee paid above the secondary threshold is a sole director cannot claim, so a genuine one-person company usually cannot use it.
Once you have a second employee earning above the threshold, it comes back into play. The conditions and how to claim are set out in our guide to the employment allowance.
How does timing change your corporation tax?
When a cost lands and when income is recognised both decide which accounting period they fall in, and that decides which year’s bill they affect. Bringing a genuine, planned cost forward before your year end can move the relief into the current period rather than the next one.
The honest version of this is modest. You are choosing when to incur costs you were going to incur anyway, not inventing them, and the accounting period end is the hinge. A pension contribution, for instance, is deductible in the period it is actually paid, so paying it before year end rather than after moves the relief forward a full year.
One timing move to avoid: taking money out as a director’s loan to defer a tax charge. It does not reduce corporation tax and it can trigger a separate charge on the company. Our guide to tax on directors’ loans explains why it is a trap rather than a tactic.
What gets a corporation tax claim refused?
This is where the reliefs above stop being a checklist and start needing judgement. Most refused claims are not fraud. They are ordinary claims that fail a condition the company did not know applied.
The usual reasons a claim is refused or reduced:
- An expense with a private element claimed in full instead of being apportioned.
- An R&D claim with no identifiable technical uncertainty, or filed without the Additional Information Form.
- A pension contribution too large to make sense as pay for the director’s actual role.
- Capital spend treated as a repair, or a repair treated as capital, putting the relief in the wrong place.
- A relief claimed in the wrong accounting period because the cost was dated loosely.
Several of these turn on facts specific to your company, which is exactly why they are hard to self-assess. If you want a tax accountant who will review your position before you file rather than after HMRC asks a question, that is the point of getting one involved.
How Sleek helps with paying less corporation tax
Sleek pairs a qualified accountant with AI that does the groundwork and shows its working, so you can see exactly which reliefs have been applied to your return and why. The reliefs on this page are only worth what you actually claim, and claiming them correctly is where a real accountant earns their fee
FAQs on how to pay less corporation tax
What about our R&D tax credits?
If your company is resolving a genuine technical uncertainty, you may have a claim under the merged R&D scheme at a 20% above-the-line credit, or enhanced support if you are a loss-making R&D-intensive company [HMRC, gov.uk, fetched 22 Sep 2026]. The claim now needs an Additional Information Form and, for first-time claimants, advance notification to HMRC. The threshold question is whether the work is genuinely R&D, so it is worth a short conversation before you spend time on a claim.
Do you also offer advice around pensions?
We can advise on employer pension contributions as a corporation tax matter, which is how they save your company money. An employer contribution is deductible against corporation tax, avoids National Insurance, and is limited by the £60,000 annual allowance for 2026/27 rather than by your salary [HMRC, gov.uk, fetched 22 Sep 2026]. Regulated investment advice on the pension itself sits with a financial adviser, and we will tell you when that line is reached.
Can I pay myself entirely in dividends to reduce corporation tax?
Paying yourself entirely in dividends does not reduce corporation tax, because dividends come out of post-tax profit and are not deductible for the company. A small salary is usually more efficient overall, since salary is deductible and can use the personal allowance. The right split is a calculation that depends on your other income, so it is worth checking rather than defaulting to all-dividends.
Can I put my home office through the company?
Yes, within limits. You can claim a reasonable proportion of household costs for the space and time used for work, or a flat rate, but only the business proportion is allowable. A room used partly for private purposes cannot be claimed in full, and claiming the whole cost is a common reason a deduction is reduced on review.
Is a company car still worth it?
Often not, because a company car creates a taxable benefit in kind for the director and the car itself rarely qualifies for the annual investment allowance or full expensing. A new, unused, fully electric car is the exception, attracting a 100% first-year allowance [HMRC, gov.uk, fetched 22 Sep 2026]. For most petrol or diesel cars the personal tax charge outweighs the company saving, so the numbers need running before you buy.
Can I backdate expenses from before the company existed?
You can claim genuine pre-trading expenses incurred in the seven years before trading began, treated as if they were incurred on the first day of trading. They still have to be wholly and exclusively for the business and properly recorded. What you cannot do is invent or re-date costs to fill a period, which is a different thing entirely.
What happens if HMRC disagrees with a claim?
HMRC can open an enquiry, ask for evidence, and reduce or refuse the claim, and where a claim was careless or wrong it can charge interest and penalties on top. A well-documented claim that meets its conditions is usually settled without drama. The risk rises sharply with claims that were never properly evidenced, which is why the paperwork matters as much as the relief.
Does reducing my corporation tax bill increase my personal tax bill?
Sometimes, which is why the two need looking at together. Taking more out as dividends to use up profit, for example, cuts nothing off corporation tax and adds to your personal bill. Reliefs like pension contributions and capital allowances reduce company tax without a personal cost, so the aim is to reduce the total across both rather than shift tax from one to the other.
