A practical guide to the allowances, reliefs and strategies available to UK limited companies — all completely legal and HMRC-approved.
Corporation Tax is charged on your company's profits — but "profits" for tax purposes aren't the same as your bank balance. With the right structure and advice, most limited companies can legally reduce their CT bill significantly.
This guide covers the main reliefs and allowances available. None of these are loopholes — they are all legislated by HMRC and designed to encourage investment and reward legitimate business activity.
Understanding your rate is the starting point for any CT planning
The rate you pay depends on your taxable profits for the accounting period. The main rate of 25% applies to profits over £250,000, with marginal relief available between £50,000 and £250,000.
If your company has associated companies (e.g. you own multiple limited companies), the thresholds are divided by the number of associated companies. This can push you into the 25% band sooner than expected.
Marginal Relief tapers the effective rate between 19% and 25% for profits in the £50k–£250k band. The effective rate increases gradually — it doesn't jump straight to 25% once you exceed £50,000.
Claim tax relief on equipment, vehicles and property improvements
Capital allowances let you deduct the cost of business assets from your profits before calculating your CT bill. Different rules apply depending on the type of asset.
Introduced permanently in April 2023, Full Expensing allows companies to deduct 100% of the cost of qualifying plant and machinery in the year of purchase — with no annual limit. This is one of the most valuable reliefs available.
Qualifying assets include: computers, machinery, office furniture, equipment, and most business tools. It does not apply to cars or assets used partly for non-business purposes.
The AIA provides 100% relief on up to £1,000,000 of qualifying expenditure per year. It covers a wider range of assets than Full Expensing, including some integral features and special rate assets.
Most small and medium businesses will never exceed this limit, meaning all capital investment can be fully deducted in the year of purchase.
Assets not covered by Full Expensing or AIA are placed into pools and written down over time:
Company cars go into pools based on their CO₂ emissions rather than qualifying for Full Expensing.
Buying qualifying assets before your year-end can accelerate tax relief into the current period. If you're planning a large purchase, the timing relative to your accounting year can make a significant difference.
Reduce your taxable profits by claiming all allowable expenditure
Allowable expenses reduce your taxable profit, not just your accounting profit. The general rule is that expenses must be "wholly and exclusively" for the purposes of the trade. Many businesses under-claim here.
Hardware, software subscriptions, cloud services, website costs and online tools used for the business.
Rent, rates, utilities, insurance, repairs and maintenance on business premises. Also home office costs if working from home.
Business mileage, public transport, accommodation for business trips. Cars owned by the company attract capital allowances based on CO₂.
Website, advertising spend, design, PR and promotional materials — all fully deductible as revenue expenditure.
Training that improves or updates existing skills (not acquiring new ones) is allowable. Industry courses, certifications and subscriptions qualify.
Accountancy, legal advice, consultancy and other professional services are fully deductible when related to the trade.
Entertaining clients or customers is specifically disallowed for CT purposes. Staff entertaining (e.g. the annual Christmas party up to £150 per head) is allowable, but client lunches and hospitality are not.
One of the most effective tools for reducing CT is how you pay yourself
Paying yourself a salary through the company reduces your CT bill because the salary is a deductible expense. However, salary above certain thresholds triggers PAYE income tax and National Insurance for both the director and the company.
For 2025/26, the most tax-efficient salary for a director with no other income is typically set at the Secondary Threshold (£9,100) or the Primary Threshold (£12,570) — preserving NI credits without triggering NI costs, while also reducing the company's CT.
Employer pension contributions made by the company are fully deductible as a business expense — there is no benefit in kind, no employer NI, and no income tax on the contribution for the director. This makes pension contributions one of the most tax-efficient ways to extract value from a company.
The Annual Allowance for 2025/26 is £60,000 (including all contributions). Unused allowance can be carried forward for up to 3 years.
Dividends are paid from post-tax profits — they do not reduce your corporation tax bill. The optimal mix of salary, pension contributions and dividends is unique to each director's situation.
Government-backed reliefs that can significantly reduce your CT bill
If your company is working on innovative projects — developing new products, processes, software or services — you may be able to claim R&D Tax Credits. This is one of the most generous reliefs available and is widely under-claimed.
From April 2024, most companies use the merged R&D scheme, which provides an enhanced deduction of 186% of qualifying R&D costs against profits. For loss-making companies, a payable credit may be available.
Qualifying costs include: staff costs, subcontractors, materials consumed in R&D, software licences directly used in R&D activity, and certain overhead allocations.
If your company holds patents and earns income from them, the Patent Box allows profits attributed to those patents to be taxed at just 10% rather than the full CT rate. This is particularly relevant for tech, engineering and pharmaceutical companies.
The patent must be granted by the UK Intellectual Property Office or certain European patent authorities, and the company must have been involved in its development.
A range of reliefs are available for companies in creative industries, including:
These reliefs allow companies to surrender losses for a payable credit from HMRC, making them valuable even for loss-making productions.
If your company makes a loss, it doesn't simply disappear. Trading losses can be:
This flexibility means a difficult year doesn't have to mean lost tax relief — it can reduce CT in profitable years past or future.
Practical answers to the questions directors ask most
Our team reviews your accounts and identifies every relief and allowance you're entitled to — no stone unturned.