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11 (Legal) Ways to Reduce Your Corporation Tax Bill in 2024

The 25% corporation tax rate hit many UK businesses hard when it came into effect in April 2023. But here's the good news: the UK tax system is designed with numerous legitimate opportunities to reduce your tax burden – you just need to know where to look.

We're here to clear up the confusion around corporate tax planning. While navigating HMRC's regulations can feel overwhelming, smart tax strategy doesn't have to be rocket science. This guide breaks down eleven proven methods that businesses across the UK are using right now to keep more of their hard-earned profits.

By the end of this article, you'll have a clear roadmap for reducing your corporation tax bill legally and strategically.

This might sound basic, but you'd be surprised how much money businesses leave on the table each year by missing legitimate expense claims.

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%.

For example: Company A discovered they'd been missing clothing allowances for uniformed staff and office insurance premiums. This oversight cost them £3,200 in unnecessary tax over two years.

Partner with a qualified accountant who specialises in expense identification. They'll spot qualifying costs that aren't immediately obvious – and the investment typically pays for itself several times over.

If your business has developed patented products, processes, or services, you're sitting on a significant tax reduction opportunity that many companies overlook.

Patent Box relief applies a reduced corporation tax rate of just 10% (compared to the standard 25%) on profits derived from your patented innovations.

You must formally opt into the scheme by notifying HMRC within two years of the accounting period when the profits were generated. Submit your election either within your corporation tax return or via written notification to HMRC.

Any business holding patents that generate revenue should consider this option – from tech startups to manufacturing companies with proprietary processes.

Capital allowances are arguably the most underutilised tax relief available to UK businesses. They're also notoriously complex – but that complexity is exactly why they offer such significant opportunities.

Business assets including machinery, equipment, building fixtures, and specific building improvements can all generate valuable deductions. There are many options for capital allowances, from business cars to R&D capital allowances.

Under current rules, you can deduct the full value of qualifying assets (up to £1 million) from your profits before tax. Alternatively, you can spread the deduction over several years. How you acquire assets matters. Whether you buy outright, lease, or use hire purchase agreements can significantly affect your allowance eligibility.

Getting professional advice on this is recommended, but the potential savings make this investment worthwhile for most businesses.

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.

Your charitable giving can genuinely make a difference while reducing your tax burden – it's a win-win when done right.

Employer pension contributions represent one of the most straightforward ways to reduce corporation tax while supporting your team. Contributions to employee pension schemes qualify as allowable business expenses, reducing your taxable profits pound for pound.

Unlike salary increases, pension contributions don't trigger National Insurance contributions for either employer or employee.

You may wish to increase pension contributions as an alternative to salary increases – your employees benefit from enhanced retirement planning, and your business saves on both corporation tax and National Insurance.

Your business structure directly impacts your tax liability. For many businesses, the current structure isn't the most tax-efficient option available.

If you're currently operating as a sole trader or partnership, incorporation could significantly reduce your tax burden. Limited companies pay corporation tax on profits (starting at 19% for profits up to £250,000) rather than income tax rates, which can reach 45%.

For established businesses, creating a holding company structure can enable tax-efficient profit distribution through dividends, potentially reducing overall tax liability.

Business restructuring has legal and practical implications beyond tax. Professional advice is essential to ensure any changes align with your operational needs and long-term strategy.

The potential savings can be substantial, but this isn't a decision to rush into without proper guidance.

The Enterprise Investment Scheme (EIS) offers investors a route to significant tax relief while supporting innovative UK businesses.

Invest up to £1 million annually in qualifying companies and receive:

• Up to 30% income tax relief on your investment
• Tax deferral for up to three years
• Capital gains tax exemption on profits (if shares held for 3+ years)

Businesses and individuals with substantial tax liabilities looking for legitimate relief combined with investment opportunities should consider the EIS.

However, EIS investments carry inherent risk as they typically involve early-stage companies. The tax benefits need to be weighed against investment risk.

Operating internationally doesn't have to mean paying tax multiple times on the same income. The UK's extensive network of double taxation agreements provides legitimate relief for businesses operating across borders.

Double taxation agreements ensure you only pay tax in one jurisdiction on specific income streams. Sometimes, you can claim credit for foreign taxes paid when calculating your UK liability. Proper structuring of international operations can ensure you're not overpaying tax while remaining fully compliant in all jurisdictions.

International tax planning requires specialist expertise. The rules vary significantly between different countries and types of income. If your business operates internationally, professional advice on double taxation agreements could deliver substantial savings.

This might seem administrative, but proper expense documentation and invoicing separation creates multiple tax advantages.

Itemising expenses separately makes VAT reclaim straightforward and ensures you don't miss entitled refunds. Clear expense separation also makes it easier to identify and evidence qualifying business deductions, reducing the risk of missed claims.

Well-documented, separated expenses will provide robust evidence if HMRC ever queries your claims.

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.

Business losses don't have to be write-offs. UK tax rules allow you to carry losses forward and offset them against future profits – but there are strategic considerations to maximise this benefit.

Losses from unprofitable years can reduce taxable profits in future profitable years, pound for pound. For profits exceeding £5 million, carried-forward losses can only offset up to 50% of the excess.

Consider the timing of loss claims carefully. Sometimes it's more beneficial to carry losses forward rather than claiming immediate relief, depending on your expected future profit levels and tax rates.

Ensure losses are properly calculated and documented, as HMRC may challenge loss claims years after they're made.

R&D tax credits represent one of the most generous tax reliefs available to UK businesses – yet many eligible companies never claim them.

You can claim up to 27% tax relief on qualifying R&D expenditure, whether your projects succeeded or failed.

Any UK company undertaking work to advance science or technology or resolve scientific/technological uncertainties can qualify. This includes:

• Software development solving technical challenges
• Process improvements in manufacturing
• Product development with technical innovation

You don't need a lab coat or PhD to qualify. Many everyday business activities involve qualifying R&D – from developing new software features to improving manufacturing processes.

R&D tax credit claims require technical and financial documentation to demonstrate qualifying activities and expenditure. Professional support ensures you maximise your claim while meeting HMRC's requirements.

R&D tax credits offer some of the best returns on investment in the UK tax system – but only if you claim them correctly, as there is a high rate of audits from HMRC on this valuable scheme.

Corporation tax planning isn't about finding loopholes – it's about understanding and utilising the reliefs and allowances that HMRC has designed to support UK businesses.

Start with the basics; review your expense claims and ensure you're capturing all legitimate business costs. This alone could save thousands annually.

While understanding the above strategies is valuable, implementing them effectively requires specialist knowledge. The complexity of UK tax legislation means professional advice isn't a luxury – it's essential for maximising savings while ensuring compliance.

If your business undertakes any form of innovation or technical development, R&D tax credits could provide substantial relief. Many businesses miss out on thousands of pounds simply because they don't realise they qualify.

Ready to explore your R&D tax credit opportunities? Our specialists at Tax Cloud can help you identify qualifying activities and maximise your claim. Get in touch to discover how much your business could save through R&D tax relief.