Most companies overpay corporation tax not through poor planning but through poor record-keeping. Relief that was available was never claimed, because nobody kept the receipt, logged the mileage, or mentioned the equipment purchase.
Everything below is a relief you are entitled to claim under UK tax law. No schemes, no disclosure, nothing aggressive — it just has to be claimed properly and on time.
And remember: a deduction is worth 19p, 25p or 26.5p in the pound depending on where your profit sits. Between £50,000 and £250,000, every £1,000 of deduction saves £265.
Reliefs on money you were spending anyway
1. Employer pension contributions
Employer contributions to a registered pension scheme are generally deductible in the period they are paid, not accrued. No employer National Insurance, no income tax on the employee at that point.
The annual allowance is £60,000 across all schemes, with unused allowance from the previous three tax years often available to carry forward, tapered where threshold income exceeds £200,000 and adjusted income exceeds £260,000.
For a director-shareholder this is usually the most efficient pound the company can spend: it sidesteps corporation tax, employer NIC, employee NIC and dividend tax at once.
2. Capital allowances and full expensing
If your company bought equipment and nobody claimed allowances on it, you are paying tax on money you already spent.
- Annual Investment Allowance — 100% on the first £1,000,000 a year, new or second-hand plant and machinery, not cars
- Full expensing — 100% for companies on new and unused main-rate plant and machinery, not cars
- 50% first-year allowance — new and unused special rate assets
- 40% first-year allowance — new for expenditure incurred on or after 1 January 2026 on new and unused plant and machinery qualifying for main-rate writing-down allowances, reaching investment full expensing does not, including unincorporated businesses and assets bought for leasing. Second-hand assets and cars are excluded, and there is a specific exclusion for overseas leasing. Only 40% is relieved up front — the remaining 60% enters the main pool and attracts writing-down allowances
- Writing-down allowances — 14% on the main pool from 1 April 2026, down from 18%, and 6% on the special rate pool
With the writing-down rate falling, claiming relief up front is worth more than it was.
3. R&D tax relief
For accounting periods beginning on or after 1 April 2024 the merged R&D expenditure credit scheme gives a taxable credit at 20% of qualifying expenditure. Enhanced R&D intensive support is for loss-making SMEs whose qualifying R&D is at least 30% of total expenditure: an extra 86% deduction, 186% in total, plus a payable credit worth up to 14.5% of the surrenderable loss. Both are capped at £20,000 plus 300% of relevant PAYE and National Insurance liabilities.
R&D is not limited to laboratories. It covers work seeking an advance in science or technology where the outcome was genuinely uncertain, often including software and process engineering. Check whether you need to notify HMRC in advance, and submit the additional information form before claiming.
4. Get the salary and dividend mix right
Salary and employer National Insurance are deductible. Dividends are not — they come out of profit already taxed.
Employer NIC runs at 15% above a £5,000 secondary threshold. Employment Allowance is £10,500, but a company with only one director cannot claim it where that director is the only employee liable for secondary Class 1 NIC, which excludes most single-director companies.
Dividend rates rose on 6 April 2026 to 10.75% basic, 35.75% higher and 39.35% additional, with the allowance still £500 — shifting the arithmetic towards salary and pension for some directors.
5. Claim every allowable expense
The test: wholly and exclusively for the purposes of the trade, and not capital.
Commonly missed — accountancy fees, bank and finance charges, professional indemnity insurance, software subscriptions, training that maintains existing skills, business use of telephone and broadband, business travel, and pre-trading expenditure incurred in the seven years before trading began. Where a cost has a mixed purpose, only a clearly separable business part is deductible.
Reliefs that need a decision from you
6. Use trading losses properly
A trading loss can be set against other profits of the same period, carried back against the previous 12 months, surrendered as group relief, or carried forward. A carry-back claim must be made within two years of the end of the loss-making period and can generate a repayment of tax already paid. Carrying forward is the default if you do nothing, which is rarely the best outcome.
7. Time expenditure around your year end
A deductible cost incurred on the last day of the accounting period reduces this year’s bill. Incurred the next day, it waits twelve months.
If you were replacing equipment, making a pension contribution or paying a bonus anyway, raise the timing before the year end. Pension contributions are deductible when paid, so the money has to leave the account. Paying early does not rescue a cost that fails the wholly and exclusively test.
8. Charge the company for use of your home
Where a director or employee works from home under a homeworking arrangement, the company can pay £6 a week (£26 a month) towards additional household costs with no tax, no National Insurance and no reporting. More is possible where the additional costs are genuinely higher and evidenced.
The alternative is a formal licence for the company to use part of your home at a commercial rate — bigger deduction, but the rent is taxable in your hands.
9. Claim business mileage properly
For 2026/27 HMRC’s approved mileage allowance payment rate is 55p per mile for the first 10,000 business miles and 25p thereafter. For National Insurance purposes it is 55p for all business miles. Motorcycles 24p, bicycles 20p.
The 45p figure is out of date. The increase to the car rate was announced on 21 May 2026 and backdated to 6 April 2026, so it applies to the whole of the 2026/27 tax year. A director doing 8,000 business miles now claims £4,400 rather than £3,600, and most published guidance still shows the old rate.
10. Professional subscriptions and trade bodies
Subscriptions to professional bodies on HMRC’s approved list are deductible where membership is relevant to the employee’s duties, and company memberships of trade associations where wholly and exclusively for the trade. Not deductible: gym memberships, general-interest publications, and networking clubs where the benefit is largely personal.
11. Staff costs and exempt benefits
Salaries, employer pension contributions, employer National Insurance, staff training and recruitment are all deductible. So are two exemptions worth using:
- An annual staff function open to all employees, costing no more than £150 a head across the year including VAT, transport and accommodation
- Trivial benefits costing £50 or less each, subject to a £300 annual cap for directors of close companies
Both are exempt from a benefit-in-kind charge on the employee while staying deductible for the company.
12. Enterprise Management Incentives (EMI)
EMI is a tax-advantaged share option scheme for key employees, with options up to £250,000 per employee over three years. The employee must work at least 25 hours a week, or 75% of their working time, for the company.
The eligibility limits widened sharply on 6 April 2026: gross assets of £120 million or less and fewer than 500 full-time employees, up from £30 million and 250. Two further changes landed on the same date. The company-wide limit on unexercised options rose from £3 million to £6 million, and the qualifying exercise period rose from 10 years to 15 — existing unexercised options can be amended to take advantage of the longer window.
One exception matters. The increased limits do not apply to a Specified Northern Ireland Company, which stays on the old £30 million gross assets and 250 employee limits. Check this before relying on the headline figures for a Northern Ireland company.
Excluded activities include banking, farming, property development, legal services and ship building.
What does not work
Paying personal costs through the company does not reduce tax. It creates a benefit in kind, a director’s loan account balance, or both — plus Class 1A National Insurance and, if the loan is unrepaid nine months and one day after the year end, a section 455 charge.
No planning changes the deadlines. Corporation tax is payable nine months and one day after the period ends, and reliefs claimed on a return filed later do not stop interest running.
Frequently asked questions
What is the most effective way to reduce corporation tax for a small company?
For most director-run companies, employer pension contributions and capital allowances give the largest reliable saving. Employer contributions are deductible in the period paid, carry no employer National Insurance, and are not taxed on the employee at that point.
Can I reduce corporation tax by paying myself a bigger dividend?
No. Dividends come out of profit that has already suffered corporation tax and are not deductible, so increasing one has no effect on the company’s bill at all. Salary and employer pension contributions are deductible; dividends are not.
Does buying equipment before my year end reduce my corporation tax?
It can, if the purchase is genuinely commercial and the expenditure is incurred before the period ends. Most plant and machinery qualifies for 100% relief under the £1,000,000 Annual Investment Allowance. Buying assets you do not need in order to save 25p in the pound is not a saving.
Can a small company claim R&D tax relief?
Yes, if it has a project seeking an advance in science or technology where the outcome was genuinely uncertain. For accounting periods beginning on or after 1 April 2024 you claim under the merged R&D expenditure credit scheme at 20%, or under enhanced R&D intensive support if you are a loss-making SME whose qualifying R&D is at least 30% of total expenditure.
What mileage rate can I claim for 2026/27?
55p per mile for the first 10,000 business miles and 25p thereafter, for cars. For National Insurance purposes the rate is 55p for all business miles. Motorcycles are 24p and bicycles 20p. The increase from 45p was announced on 21 May 2026 and backdated to 6 April 2026.
Claiming what you are entitled to
None of this requires a scheme. It requires someone who knows which reliefs apply to your company and asks the right questions before the year end rather than after it.
SmartFiling prepares and files CT600 returns on a fixed fee, including capital allowances, the corporation tax computation and HMRC submission, with a three-week turnaround from receiving your records. Every return is reviewed and signed off by an ICAEW Chartered Accountant.
