How do I get my corporation tax down?

Almost every business owner asks this at some point in the year, usually a few weeks before the accounts are due. It is a fair question and it has a real answer — but the useful version of it is narrower than most articles pretend.

This is a plain guide to what actually brings a corporation tax bill down, what only looks like it does, and which parts sit with your accountant rather than with us.

First, work out what rate you are really paying

Most owners can name the headline rates. Fewer know which one applies to them, and that is where the money is.

• Profits up to £50,000 — 19%, the small profits rate
• Profits over £250,000 — 25%, the main rate
• Profits between the two — 25%, reduced by marginal relief

That middle band is the part worth understanding. It is not a 19% band and it is not a 25% band.

A company with exactly £50,000 of profit pays £9,500. A company with exactly £250,000 pays £62,500. So the £200,000 of profit in between costs £53,000 in tax — an effective rate of 26.5% on every pound in that band. Higher than the main rate, which is the opposite of what most people assume.

If your profits sit between £50,000 and £250,000, every £1,000 of profit you can legitimately reduce saves you £265. That is why doing this properly is worth more than doing it quickly in month twelve.

One trap worth knowing. Both limits are divided by the number of associated companies. Two companies under common control and each one’s band runs from £25,000 to £125,000, not £50,000 to £250,000. Owners with a trading company and a separate property or holding company get caught by this constantly, and often find they are in marginal relief when they thought they were paying 19%.

The honest list of what reduces the bill

There are four things that genuinely move the number for most owner-managed companies. Everything else is either a variation on one of them or is not worth the risk.

1. Employer pension contributions

This is the strongest one available to most business owners, and it is the one we deal with rather than your accountant.

A contribution paid by the company into a director’s pension is normally an allowable business expense, so it comes off the profit the tax is charged on. There is no employer National Insurance on it, no employee National Insurance, and no income tax at the point it is paid. Compare that with a dividend, which is paid out of profit that has already had corporation tax taken off it, and then taxed again in your hands.

That is the whole point: it is the only route where money leaves the company without being taxed on the way out.

The limits are more generous than most owners think:

• The annual allowance is £60,000, and unlike personal contributions, a company contribution is not capped at your salary.
• Carry forward lets you use unused allowance from the previous three tax years, once the current year is used up. A director who has not contributed for a while can often pay in a great deal more than £60,000 in a single year.
• The allowance is tapered for high earners — threshold income over £200,000 and adjusted income over £260,000. Worth checking before a large contribution rather than after.

Two caveats, both important. The contribution has to satisfy HMRC’s “wholly and exclusively” test — broadly, your total package has to be commercially justifiable for the work you do. And relief is given in the accounting period the contribution is actually paid, not accrued, so a payment made a day after the year end lands in the following year.

2. Capital allowances — and the timing has changed

If the company is buying equipment, vehicles, machinery or fit-out, the relief available is substantial:

• The Annual Investment Allowance gives 100% relief on up to £1 million of qualifying plant and machinery a year. It is permanent at that level.
• Full expensing gives companies 100% first-year relief on qualifying new main-rate plant and machinery, with no cap.
• A 40% first-year allowance came in from 1 January 2026 for certain assets that full expensing and the AIA do not reach — including assets bought for leasing. Second-hand assets and cars are excluded.

The change worth acting on: the main pool writing-down allowance dropped from 18% to 14% from 1 April 2026 for companies. Anything that falls into the main pool rather than qualifying for a first-year allowance now unwinds more slowly than it used to. That makes it more valuable than before to know which of your planned purchases qualify for 100% relief, and to time them accordingly.

3. R&D relief, if you genuinely qualify

The merged R&D expenditure credit is worth 20% of qualifying expenditure. Loss-making, R&D-intensive SMEs may instead claim enhanced support — an extra 86% deduction and a payable credit worth up to 14.5% of the surrenderable loss — where qualifying R&D is at least 30% of total expenditure.

Two things to say about it plainly. It is genuinely valuable if you do qualifying work, and it is far more tightly policed than it was. If a firm approaches you promising a claim on work you would not describe as research, that is a reason to be careful, not encouraged.

4. How you pay yourself

Salary is deductible; dividends are not. But salary carries employer National Insurance at 15%, and the Employment Allowance is £10,500 for 2026/27 — though a company where the sole employee is also a director cannot claim it.

The result is that the salary-versus-dividend split is not a corporation tax question on its own. It is a combined question about corporation tax, National Insurance, your own income tax and what you want the company to fund. It is worth doing once, properly, and then leaving alone.

What does not work

Three that come up often enough to be worth naming.

Spending money to save tax. Buying something the business does not need in order to reduce a bill leaves you worse off. At 26.5%, you are still out of pocket by 73.5p in every pound. The only purchases worth accelerating are ones you were going to make anyway.

Arrangements that are sold to you. If the pitch involves loans that are not repaid, offshore structures, or a fee based on a percentage of “tax saved”, treat it as a liability rather than a plan. HMRC pursues these years later, and the company and its directors carry the cost.

Leaving it to the last three weeks. Most of the reliefs above depend on something happening before the year end — the contribution being paid, the asset being bought, the decision being taken. After the year end, the options are largely gone.

A workable order

1. Find out which band you are in, counting associated companies properly.
2. Get a profit forecast before the year end, not after it. Three months is enough to act; three weeks usually is not.
3. Take the reliefs on money you are already spending — capital purchases you planned, R&D you already do.
4. Then look at the pension contribution, because it is the only route that reduces the tax and moves the money to you at the same time.
5. Check carry forward before assuming £60,000 is the ceiling.
6. Review the salary and dividend split once a year, alongside the rest, rather than in isolation.

What to do next

Your accountant handles points one to three. The pension side is ours, and it is usually the largest single number available to an owner-managed company that is already profitable.

The first useful step is not choosing a strategy. It is finding out what your company could contribute this year, including carry forward, and what that would actually save at your rate — because for a company in the marginal relief band the answer is normally larger than the owner expects.

We are an independent, whole-of-market firm based at Glasgow Harbour, working with business owners across Glasgow and the west of Scotland. We work alongside your accountant, not instead of them.