How to Reduce Your Company's Corporation Tax Bill Legally

The most effective way to reduce your company's corporation tax bill legally is to claim every allowable expense, use capital allowances such as the Annual Investment Allowance and full expensing, make employer pension contributions, and time income and spending around your year end. Corporation tax is charged on your company's taxable profit, so reducing that profit through genuine, well-documented deductions directly lowers the tax due. The corporation tax rates UK 2026 companies pay run from 19% on the smallest profits to 25% on the largest, with a marginal band in between, so the rate you pay also matters. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, helps limited company owners plan their year end to keep the bill as low as the law allows. This article sets out the practical, legitimate steps that work in 2026/27.

Key Takeaways

• Corporation tax rates for 2026/27 are 19% on profits up to £50,000, a marginal rate on profits between £50,000 and £250,000, and 25% on profits above £250,000.
• The marginal relief fraction of 3/200 applies between £50,000 and £250,000, producing an effective marginal rate of 26.5% on profits in that band.
• The £50,000 and £250,000 thresholds are divided by the number of associated companies, so group structures can push more profit into the higher rate.
• Employer pension contributions are an allowable deduction for the company and are not capped by the employee's salary, making them one of the most efficient ways to reduce taxable profit.
• The Annual Investment Allowance gives 100% tax relief on up to £1,000,000 of qualifying plant and machinery in the year of purchase.

What are the corporation tax rates in 2026/27?

Corporation tax in 2026/27 is charged at 19% on taxable profits up to £50,000, 25% on profits above £250,000, and at a tapered marginal rate on profits between those two figures. The lower £50,000 threshold is the small profits rate 19% band, and companies whose profits sit entirely within it pay a flat 19%.

Between £50,000 and £250,000, marginal relief applies using a fraction of 3/200, which smooths the jump between the two main rates. The practical effect is an effective rate of 26.5% on every pound of profit in that middle band, which is higher than the 25% headline rate. Knowing where your profit falls is the starting point for corporation tax planning limited company owners should carry out before their year end, because moving profit out of the marginal band can save tax at that 26.5% effective rate.

How do allowable expenses and capital allowances cut the bill?

Claiming all allowable expenses and capital allowances is the foundation of reducing corporation tax, because tax is charged on profit after these deductions. An allowable expense must be incurred wholly and exclusively for the purposes of the trade, covering costs such as salaries, software, professional fees, travel, and use of home where relevant.

Capital spending on equipment is handled through capital allowances rather than ordinary expenses. The Annual Investment Allowance gives 100% relief on up to £1,000,000 of qualifying plant and machinery in the year of purchase, and full expensing allows companies to deduct 100% of qualifying new main-rate plant and machinery with no upper limit. A company buying £40,000 of computers and equipment before its year end can therefore deduct the full £40,000, cutting taxable profit by that amount and saving £7,600 in corporation tax at the 19% small profits rate, or more if the profit would otherwise fall in the marginal band.

Can pension contributions reduce corporation tax?

Yes, employer pension contributions are an allowable business expense that reduces your company's taxable profit and therefore its corporation tax. Unlike personal contributions, an employer contribution is not restricted to the director's salary, so a company can contribute well beyond a modest salary level provided the total remuneration package is commercially justifiable.

Contributions must be paid before the company's year end to count for that accounting period, as relief is given on a paid basis rather than an accruals basis. For an owner-managed company, routing profit into the director's pension is often more tax-efficient than drawing it as a dividend, because the contribution escapes both corporation tax and the second layer of dividend tax that applies at 10.75% to 39.35% in 2026/27. Annual and lifetime pension limits still apply, so the level should be planned rather than guessed.

What year-end timing strategies are legal?

Timing income and expenditure around your accounting year end is a legal and effective way to manage corporation tax, because profit is measured over a fixed period. Bringing forward genuine costs, such as equipment purchases, pension contributions, or supplier invoices, into the current period reduces this year's profit, while deferring them pushes the deduction into next year.

Where profit is near the £50,000 or £250,000 threshold, small timing decisions can change the rate applied. A director could, for example, make an additional pension contribution to bring profit below £50,000 and out of the marginal band, saving tax at the 26.5% effective rate on the profit removed. The number of associated companies also matters, because the thresholds are divided between them, so restructuring or timing a new company's start can affect the rate. For a full overview of how the system works, see our guide to corporation tax.

Frequently Asked Questions

What is the corporation tax rate for a small company in 2026/27?

A company with taxable profits up to £50,000 pays corporation tax at the small profits rate of 19% in 2026/27. Profits between £50,000 and £250,000 are taxed at a tapered marginal rate, giving an effective rate of 26.5% on profit in that band, and profits above £250,000 are taxed at 25%.

How can I legally reduce my company's corporation tax?

You can legally reduce corporation tax by claiming all allowable business expenses, using capital allowances such as the Annual Investment Allowance and full expensing on equipment, making employer pension contributions before your year end, and timing income and costs around your accounting period. Every deduction must be genuine and incurred wholly and exclusively for the business.

Are pension contributions tax deductible for a limited company?

Yes, employer pension contributions are normally deductible for corporation tax as a business expense, reducing the company's taxable profit. They are not limited to the director's salary, and relief is given in the accounting period the contribution is actually paid, so contributions must be made before the year end to count for that period.

What is the marginal relief fraction for corporation tax?

The marginal relief fraction for 2026/27 is 3/200. It applies to companies with profits between £50,000 and £250,000 and tapers the rate between 19% and 25%. The result is an effective marginal rate of 26.5% on each pound of profit within that band, which is higher than the 25% main rate.

Do associated companies affect my corporation tax rate?

Yes, associated companies reduce the profit thresholds. The £50,000 and £250,000 limits are divided by the number of associated companies, so two associated companies each have a £25,000 lower limit and a £125,000 upper limit. This can push profit into the marginal band or the main rate sooner than for a standalone company.

How Blue Tick Can Help

Blue Tick Accountants reviews your company's forecast profit before the year end and identifies the legitimate deductions, capital allowances and pension contributions that will lower your corporation tax. As a Guildford-based practice working with limited company owners across the UK, Blue Tick Accountants makes sure you claim everything you are entitled to while staying fully compliant with HMRC. Head to our website and book a meeting now.

Conclusion

Reducing corporation tax legally comes down to claiming every genuine expense, using capital allowances on equipment, funding a director pension, and timing decisions around your year end so profit is measured at the lowest sensible level. With rates ranging from 19% to an effective 26.5% in the marginal band, planning before the period closes is what turns good intentions into real savings. Review your position early, keep clear records, and take advice so the tax you save is tax you were never obliged to pay.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.