In April 2023, corporation tax rose from 19% to 25% for companies with profits over £250,000. Businesses whose profits do not exceed £50,000 have a small profits rate of corporation tax which is 19%.

This increase in corporation rates means exploring ways to save on your corporation tax is even more important now than ever.

Who must pay corporation tax?

You must pay Corporation Tax on profits from doing business as:

• a limited company
• any foreign company with a UK branch or office
• a club, co-operative or other unincorporated association, e.g. a community group or sports club

Taxable profits for Corporation Tax include the money your company or association makes from:

• doing business (‘trading profits’)
• investments
• selling assets for more than they cost (‘chargeable gains’)

If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.

Ways to save on corporation tax

There are many different ways to save on your corporation tax; we suggest you meet with your accountant to discuss which strategies will work most effectively for you. Here are five options that are applicable to a wide range of businesses.

1. Directors’ salaries – Directors of Limited companies can use their personal allowance more effectively. This means drawing a tax-efficient combination of salary and dividends from the business.
2. Employer pension contributions - If the company employs you, you can make employer contributions to your pension from your company account. These are normally treated as business expenses, so you won’t pay corporation tax on the contribution.

3. Capital allowances – These let you deduct some or all the value of an item from your profits before you pay tax. You can claim capital allowances on equipment, machinery, and business vehicles.
4. Claim on expenses – You claim for the cost of consumables that are not business assets in a different way. This includes your business’s day-to-day running costs as well as interest payments or finance costs for buying assets. If you're a limited company, these can be deducted from your profits as a business cost.
5. R&D Tax Relief - Research and Development (R&D) tax relief supports companies that work on innovative projects in science and technology. You may claim corporation tax relief if your project meets the standard definition of R&D. This can be as much as £25,000 for every £100,000 spent on innovation projects.

We hope you found this useful; as mentioned earlier, there are a lot of ways in which you can save on corporation tax; we would be happy to meet to discuss more options that may be applicable to your personal circumstances. Please contact us by calling 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it.