UK companies have been dealing with the 25% corporation tax rate since April 2023. For many businesses, that's a significant portion of profit, but the UK tax system includes a number of legitimate reliefs and allowances that most companies aren't fully using.
This guide breaks down eleven proven methods that businesses across the UK are using right now to keep more of their hard-earned profits.
Claim every business expense you're entitled to
The most straightforward saving starts with a thorough review of what you're claiming as a business expense. Legitimate costs that reduce your taxable profit include staff entertainment, professional insurance, travel, and branded workwear for employees.
Conduct a thorough annual review of every business expense. We're talking about everything from staff Christmas parties and professional insurance to travel costs and even branded clothing for employees. Every pound you can legitimately claim as a business expense is a pound that doesn't get taxed at 25%.
If your company spends around £50,000 a year in miscellaneous costs and isn't capturing all of them, you could be paying tax on income that shouldn't be taxable in the first place. A specialist accountant will often identify qualifying expenses that aren't immediately obvious, and the investment typically pays for itself.
Check whether Patent Box applies to your business
If your company earns income from patented products, processes, or services, Patent Box reduces the corporation tax rate on those profits to 10%, compared with the standard 25%. You need to formally opt in by notifying HMRC within two years of the accounting period in which the profits arose. If you hold patents and haven't explored this, it's worth reviewing with your accountant.
Use capital allowances in full
Capital allowances let you deduct the cost of qualifying business assets from your taxable profits. Under the Annual Investment Allowance, you can deduct the full cost of qualifying assets (up to £1 million) in the year of purchase, rather than spreading the deduction over time.
Assets that qualify include machinery, equipment, building fixtures, and some building improvements. R&D-related assets may also qualify for R&D capital allowances. How you acquire assets matters too; whether you buy outright, lease, or use hire purchase affects what you can claim and when.
Make the most of pension contributions
Employer contributions to staff pension schemes are an allowable business expense, reducing your taxable profit pound for pound. Unlike salary increases, pension contributions don't attract National Insurance for either employer or employee.
Increasing pension contributions rather than pay can be a more tax-efficient way to reward staff, worth considering as part of annual salary reviews.
Maximise the value of charitable donations
Corporate charitable donations aren't just good for your community reputation; they're a legitimate way to reduce your tax liability when structured correctly. The following donations will qualify:
- Cash donations to UK-registered charities
- Gifts of shares, equipment, or property
- Employee secondments to charitable organisations
- Sponsorship arrangements with qualifying charities
The charity must be UK-registered and able to demonstrate it operates for charitable purposes and public.
Consider donating assets rather than cash. You can often claim relief on the full market value while avoiding capital gains tax on the disposal.
Review your business structure
Your legal structure affects how your profits are taxed. If you're still operating as a sole trader or partnership, incorporation could meaningfully reduce your overall tax burden: companies pay corporation tax at rates starting from 19% (for profits up to £50,000), while income tax rates for individuals can reach 45%.
For established limited companies, a holding company structure can enable more tax-efficient profit distribution through dividends.
Business restructuring has implications well beyond tax, so professional advice is essential, but the potential savings can be substantial.
Consider Enterprise Investment Scheme opportunities
The Enterprise Investment Scheme (EIS) lets eligible investors claim up to 30% income tax relief on investments in qualifying early-stage companies, up to £1 million per year. Gains on EIS shares held for at least three years are exempt from capital gains tax.
EIS investments carry risk, as they typically involve early-stage businesses, so the tax advantages need to be weighed against the investment itself.
Manage international operations efficiently
If your company operates in multiple countries, double taxation agreements can prevent the same income being taxed twice. The UK has an extensive network of these agreements, and structuring international activities correctly can ensure you only pay tax once on a given income stream. If your business has cross-border operations or income, specialist advice here can generate real savings.
Keep records that support every claim
Good record-keeping isn't a tax strategy in itself, but it's what allows every other strategy to work. Clear, organised records make VAT reclaim straightforward, reduce the risk of missed deductions, and provide solid evidence if HMRC queries any part of your return. Separating overhead costs from revenue items through accounting software makes tax calculation more accurate and compliance checks much less stressful.
It may be worth implementing systems that automatically separate overhead costs from revenue items. This small administrative investment pays dividends during tax calculation and potential compliance checks.
Good record-keeping isn't glamorous, but it's one of the most reliable ways to ensure you claim every deduction you're entitled to.
Use losses to reduce future tax
If your company has made losses in previous years, you can carry them forward and offset them against future taxable profits. For profits exceeding £5 million, carried-forward losses can only offset up to 50% of the excess. The timing of when you use losses can affect the overall benefit, and losses should be documented from the year they arise.
Claim R&D tax credits
R&D tax credits are one of the most generous reliefs available to UK businesses, and one of the most underused. Under the current Merged Scheme (for accounting periods beginning on or after 1 April 2024), companies can claim a 20% credit on qualifying R&D expenditure, giving a real-world net benefit of around 16.2% after corporation tax.
Companies don't need a laboratory or a formal research department to qualify. If your business is solving technical problems, you may well have qualifying R&D.
HMRC audits R&D claims at a high rate, so the claim needs to be well-documented and defensible. Tax Cloud handles the technical and financial documentation as part of the claim process, and every submission is reviewed before it goes to HMRC. If you'd like to understand whether your business qualifies, get in touch and we'll walk you through it.
