To reduce your corporation tax legally, you must lower your company’s net taxable profit. You can achieve this by claiming all allowable business expenses, maximising capital allowances on equipment, making employer pension contributions, and utilising specific government tax reliefs like R&D allowances or the Patent Box.
Put simply, you can reduce your Corporation Tax if you are well aware of what HMRC actually lets you claim.
In this guide, we’ll break down in detail how to reduce corporation tax in 2026/27.
Let’s get into the details!
13 Practical Ways to Reduce Your Corporation Tax Bill
Below are the 13 legitimate ways that you can use in order to reduce your corporation tax liability:
1. Claim All Your Allowable Business Expenses
Claiming all your business expenses is literally the simplest way to lower your taxable profit. The rule from HMRC is that the cost must be “wholly and exclusively” for business purposes.
So you can claim the cost of software subscriptions, professional fees, insurance, staff training, business travel, and marketing costs. You can even claim the costs of biscuits at the client meeting (genuinely, reasonable subsistence counts).
To claim all these allowable expenses, you just keep receipts and necessary records. Never let any small stuff pass through. Because the stuff that might feel minor will add up over 12 months.
2. Use the Annual Investment Allowance (AIA)
For 2026/27, the AIA limit is £1 million. That means you can claim 100% tax relief in the year of purchase on qualifying plant and machinery spend up to that amount.
This includes things like computers, tools, machinery, and office equipment. Yes, most of it qualifies.
If you were planning to buy a new kit anyway, time the purchase before your year-end. It will shift that relief into the current period. As a result, you will not have to wait for the next twelve months.
3. Know The Difference Between AIA, Full Expensing, and The New First Year Allowance
AIA (Annual Investment Allowance), full expensing, and First Year Allowances (FYAs) are all methods of capital allowances in the UK. All these methods allow businesses to deduct the cost of qualifying plant and machinery from their taxable profits.
However, they differ significantly in who can claim them, what assets qualify, and how much can be deducted.
- Annual Investment Allowance (AIA): Provides a 100% first-year deduction up to a £1 million limit per year. It applies to almost all business types (including sole traders and partnerships). It also applies to both new and second-hand equipment.
- Full Expensing: Provides incorporated companies with an uncapped 100% first-year deduction on qualifying new and unused main-rate plant and machinery. It also includes a 50% first-year allowance for special-rate/integral assets. But it does not include second-hand items and cars.
- New 40% First Year Allowance: This permanent allowance was introduced for expenditure from 1 January 2026. It lets all business types deduct 40% of the cost of new main-rate plant and machinery in year one. This includes sole traders and partnerships. The remaining 60% enters standard writing-down pools. It also includes assets bought for leasing.
You must understand these three as they can be mixed up easily. If you get it wrong, then you might be claiming far less relief than you are entitled to.
4. Make Employer Pension Contributions
Employer pension contributions are an allowable business expense. Therefore, these contributions can reduce your taxable profit. Also, they are not subject to National Insurance the way a salary or bonus is.
It is actually one of the most tax-efficient ways to extract value from a company while also lowering your corporation tax bill.
The annual allowance for pension contributions currently is £60,000. But know that it can taper down for higher earners.
Therefore, it is always worth checking your specific position before you commit to any large contribution.
5. Check If You Qualify For R&D Tax Relief
If your company creates new processes, writes custom software, or solves technical issues, you might qualify for Research and Development (R&D) tax relief. The merged R&D scheme offers substantial tax deductions for qualifying spending.
A project may qualify if it seeks an advance in science or technology and if it tries to resolve scientific or technological uncertainty. The advance must be in the wider field. Yes, it should not merely be something new to your own company.
For accounting periods beginning on or after 1 April 2024, the old SME and RDEC schemes were replaced by the merged R&D expenditure credit scheme. It also introduced enhanced R&D intensive support. The merged scheme credit rate is 20%, and it is subject to detailed rules and restrictions.
For ring-fenced trades, different rates apply.
6. Pay Yourself Sensibly Through Salary And Dividends
The way you take money out of your business dictates exactly how much tax your company pays. It is a massive lever.
If you pay yourself a modest director’s salary up to the National Insurance threshold, that money counts as a fully deductible expense. So you can directly lower your taxable profits. On the flip side, dividends come straight out of your post-tax profits. They do not reduce your corporation tax bill.
The best approach for many business owners is to combine a low salary with dividends.
Check Out: How Do Dividends Work in a Small Business and Limited Company?
7. Employ Family Members, If The Work Is Genuine
If your spouse, partner, or adult children genuinely work in the business, you can pay them a market-rate salary as it is a deductible expense.
HMRC does check that the pay reflects real work, though. So this will only work if the role and the pay are legitimate and documented.
Don’t try to pay a relative £30,000 for ‘admin support’ if they’ve never touched the accounts.
8. Claim Use Of Home As Office
If you or your employees work from home, even part-time, your company can claim a contribution towards household costs. It includes things like heating, electricity, and the internet.
There’s a simplified flat rate HMRC allows. Or you can also calculate an actual proportion based on the space used for business.
Either way, it is a great relief that can help you lower your corporation tax.
9. Don’t Forget Trivial Benefits
You can give small and non-cash gifts throughout the year to your staff and yourself as a director. To qualify as a trivial benefit, the gift must cost £50 or less including VAT.
It cannot be cash or a voucher that can be swapped for cash. And it cannot be a reward for doing a good job or hitting a target. It has to just be a gesture of goodwill. So it can be a birthday hamper, Christmas chocolates, or a store gift card.
Personal gifts are capped at £300 a year for directors of close companies. And yes, they are completely tax-free, and they do not even need to be reported.
On its own, it will not save you thousands. But these gifts count as genuine staff welfare expenses. They are fully deductible against corporation tax.
10. Claim Bad Debt Relief
If a customer hasn’t paid you and it’s genuinely unlikely they ever will, you can write off that debt against your taxable profit.
A lot of businesses just absorb bad debts without formally claiming the relief.
If you are doing the same, it means you are paying tax on income you never actually received.
11. Use Loss Relief If You’ve Had A Rough Year
If your company made a loss, that loss doesn’t have to just sit there.
You can usually carry it back against the previous year’s profit for a refund. Or you can carry it forward to reduce future tax bills.
This is especially useful if you’ve had one bad year sandwiched between two decent ones.
12. Time Your Spending Around Your Year End
This is less about a specific relief and more about general strategy.
If you’re close to your accounting year end, find out if you’ll need to buy equipment, pay for training, or make a pension contribution soon.
If yes, then do it before your financial year ends rather than after. Doing this will pull the corporation tax relief directly into your current tax year. This way you will not have to wait a whole extra twelve months to see the savings.
13. Consider Charitable Donations
In the UK, if you are donating to registered charities, these are generally deductible against corporation tax.
Well, it might not help you lower too much of your tax bill, but it is genuinely a win if you are already charitably minded. Just make sure that the money is going directly from the company bank account, and that the charity is legally registered.
Remember that the donation cannot lead to your company making a trading loss, and it also cannot give you or your family a major benefit or gift in return. If we put it simply, it needs to be a pure donation.
The Bottom Line
If you really want to reduce corporation tax, you must understand the rules well enough to use every relief you’re actually entitled to.
Make sure to review your decisions properly around your company’s year-end.
This way you can put these strategies into action earlier.
How Accotax Can Help
At Accotax, we help you spot every relief you’re entitled to.
From R&D claims to pension planning, our accountants look at the available reliefs and how they may interact.
The aim is straightforward: help you pay the corporation tax you actually owe.
Get in touch today to find out how we can support your business growth!
Disclaimer: All the information provided in this article on “How to Reduce Corporation Tax in 2026/27 (Legal Ways That Work)“, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
