Tips to Lower Your Company’s Corporation Tax Bill

Tips to Lower Your Company’s Corporation Tax Bill

If you're a contractor who works through a limited company, and you’re based in the UK, Corporation Tax is one of the most important taxes you will have to pay. Though a lot of contractors choose limited company contracting because it works out to be more tax-efficient than working as a sole trader, it does come with more responsibilities. These aren’tresponsibilities you can ignore, hoping they disappear eventually. One of the most important is planning for and paying Corporation Tax, which all limited company contractors have to do.

At Go Limited, we’ve seen contractors leave Corporation Tax to the last minute. But, if you don't plan ahead, your bill is likely to come as a bit of a shock. This is why it’s important to know what you're doing and take the right steps, so you can lower your liability and keep more money in your business. 



You have 45 days to return items for a full refund, with or without a receipt. Items must still have their original tags.

You have 45 days to return items for a full refund, with or without a receipt. Items must still have their original tags.

You have 45 days to return items for a full refund, with or without a receipt. Items must still have their original tags.

• contractor weighing pros and cons of limited company IR35

What is Corporation Tax?

Before you dive into how to lower your limited company’s Corporation Tax bill, you need to understand what it is. Corporation Tax is a tax that limited companies in the UK have to pay on taxable profits. As a contractor, you figure out your taxable profits by taking the money that your business makes, and deducting allowable expenses. The figure you’re left with is your taxable profit number. You’ll usually have to pay Corporation Tax on the money you make from your contracting work, when your limited company makes money from its investments, and on capital gains that the company makes when it sells things.

It's important to remember that Corporation Tax is a tax on businesses, not on people. This means that your limited company has to pay Corporation Tax before you can take any draw income out as salary or dividends. After paying Corporation Tax, you can use profits that are left over. You might choose to take them as income - which you will then need to pay Income Tax on - or you might reinvest some back into the business. 

Corporation Tax Rates in 2026

Of course, you can’t plan for Corporation Tax if you don’t know what the rates are, and they do differ from Income Tax rates. Corporation Tax in the UK is based on a tiered rate system. Currently, the rate is 19% for businesses that make £50,000 or less in profit. The main rate is 25%, and this applies to businesses that make more than £250,000 a year. If your profits are between these two amounts, the tax rate gradually changes from 19% to 25%, depending on your taxable profits.

This makes it very important for contractors to stay on top of profits. A small increase in profit could put you in a higher Corporation Tax bracket, without you realising straight away. This means that careful planning around your expenses, pensions and investments can really help.

Do Limited Company Contractors Have to Pay Corporation Tax?

If you run a limited company as a contractor, you have to pay Corporation Tax on the profits that your company makes that are taxable. This isn’t something you have to pay as a contractor, but rather something your business pays as a limited company. This is the case whether you take all of the company’s profits out for yourself, or keep them in the business to use later.

As a limited company contractor, you need to send HMRC a tax return and pay the Corporation Tax by the due date. Not doing so could get you in trouble with HMRC, and you might find yourself faced with penalties, interest and unwanted attention.

Preparing for Your Limited Company’s Corporation Tax Bill

If you want to reduce the stress of Corporation Tax and avoid money problems when the time comes to pay, you need to plan ahead. You have to pay Corporation Tax 9 months and 1 day after the end of your accounting period. However, the amount you owe is based on the profits you made during that time, not when you pay the tax.

How to Prepare for Corporation Tax as a Limited Company Contractor

Don’t leave Corporation Tax until the last minute, crossing your fingers and hoping everything works out for the best. If you want to lower your company’s Corporation Tax bill and navigate everything successfully, you need to prepare.

Put Money Aside on a Regular Basis

Many contractors put aside a percentage of their income - usually somewhere between 20% and 25% - in a separate savings account, so they can pay their Corporation Tax on time.

Keep Accurate, Up to Date Records

You can’t use guesswork when it comes to Corporation Tax. Keeping your books up to date makes sure that you don'tforget about expenses that are allowed, your profit number is correct and you can make the right plans before the end of the year.

Look at Profits Before the End of the Year

Don’t leave everything to the last minute, as you might realise you’ve made a lot more than you thought. A review before the end of the year lets you pay into your pension, put money aside and bring forward allowable expenses.

Know When Your Deadlines Are

It's important to keep track of important dates when it comes to Corporation Tax, because missing filing or payment deadlines can result in fines even if you don't owe any tax.

How to Lower Your Business’ Corporation Tax Bill

Luckily, there are a number of completely legal ways for you to reduce your limited company’s Corporation Tax bill, as long as they’re planned and backed up by accurate records.

Claim Back All the Allowable Business Expenses You Can

One of the easiest ways to lower Corporation Tax is to make sure that all valid business costs are claimed. Common costs for contractors include:

  • Fees for accounting and bookkeeping
  • Business insurance
  • Professional subscriptions and memberships 
  • Tools and IT software
  • Costs of working from home
  • Courses that will help you in your current role
  • Travel for business purposes

If you don't claim your expenses, your profits go up, but so does your Corporation Tax bill.

Make Employer Pension Contributions

Pension contributions made directly by your limited company are usually deductible for Corporation Tax. For many contractors, pensions are one of the most tax-efficient ways to extract profits while planning for the future.

Invest in Equipment and Capital Allowances

You can use purchasing business assets - such as laptops, monitors, phones, tablets, office furniture and equipment - to your advantage, as many qualify for capital allowances. This allows your limited company to reduce taxable profits. Timing these purchases before your year-end can significantly lower your Corporation Tax bill.

Manage the Timing of Income and Expenses

Where commercially appropriate and allowed, contractors are often able to delay invoicing until after the year-end, and bring forward expenses into the current accounting period. This can help you to smooth profits between years and avoid being pushed into a higher Corporation Tax band.

Corporation Tax Mistakes to Avoid as a Limited Company Contractor

It doesn’t matter how long you’ve been contracting for, or how much research you’ve done into Corporation Tax, you’re at risk of making a mistake. This isn’t a reflection on you personally, nor is it saying that you’re not able to get your head around Corporation Tax. To put it simply, there’s a lot to keep on top of as a limited company contractor, and Corporation Tax mistakes are common. Common mistakes include:

  • Not budgeting for Corporation Tax throughout the year by putting money aside
  • Missing payment or filing deadlines
  • Claiming expenses that are not wholly and exclusively for business
  • Taking money out of the company without understanding the tax consequences
  • Failing to plan around profit thresholds and Marginal Relief
  • Trying to minimise tax without professional advice

Corporation Tax planning isn’t about avoiding tax, as that’s not possible if you’re wanting to stay on the right side of HMRC and the law. It’s about paying the right amount at the right time, while keeping your business compliant and financially stable.

At Go Limited, we’ve seen contractors throw themselves into setting up a limited company, without fully understanding what they need to do in regards to Corporation Tax. Not only is this going to cause you a lot of stress further down the line, but it’s going to put a big strain on your business financially. The more you know about Corporation Tax, and the more you’re able to legitimately lower your company’s Corporation Tax bill, the better. After all, you don’t want to be paying more than you need to, do you?


accountant advising on IR35 compliance

FAQs: Tips to Lower Your Corporation Tax (UK)

What is Corporation Tax and who needs to pay it?

Corporation Tax is paid by UK limited companies on their taxable profits. This includes profits from trading, investments, and the sale of assets. If you run a limited company, you are legally required to calculate and pay Corporation Tax each year.

What is the current Corporation Tax rate in the UK?

Corporation Tax rates depend on your company’s profits. Small profits are taxed at a lower rate, while larger profits attract a higher rate, with marginal relief applying in between. Rates can change, so it’s important to keep up to date or speak to an accountant.

What expenses can I claim to reduce Corporation Tax?

You can deduct allowable business expenses from your profits, such as:

  • Office costs and software
  • Travel and accommodation for business purposes
  • Professional fees (accountants, legal advice)
  • Marketing and advertising
  • Business insurance

Claiming all legitimate expenses correctly is one of the simplest ways to reduce your Corporation Tax bill.

Can director salaries reduce Corporation Tax?

Yes. Director salaries are treated as a business expense, meaning they reduce your company’s taxable profits. Many directors use a mix of salary and dividends to manage tax efficiently, but the right balance depends on your personal circumstances.

Do dividends reduce Corporation Tax?

No. Dividends are paid from profits after Corporation Tax has been calculated. While dividends can be tax-efficient personally, they do not reduce your company’s Corporation Tax bill.

Can pension contributions lower Corporation Tax?

Yes. Employer pension contributions made by the company are usually allowable business expenses. This reduces taxable profits while helping you save for retirement in a very tax-efficient way.

What is capital allowance and how does it help?

Capital allowances let you deduct the cost of qualifying assets, such as equipment, machinery, or business vehicles, from your profits. This can significantly reduce your Corporation Tax, especially when investing in your business.

Can I carry losses forward to reduce Corporation Tax?

Yes. If your company makes a loss, you can usually carry it forward and offset it against future profits, reducing Corporation Tax in later years. In some cases, losses can also be carried back.

Is it legal to reduce Corporation Tax?

Absolutely. Tax planning is legal when done correctly. The key is claiming all allowable reliefs and expenses while staying compliant with HMRC rules. Tax evasion, however, is illegal and should always be avoided.

Does using an accountant help reduce Corporation Tax?

In most cases, yes. An experienced accountant can ensure you:

  • Claim all allowable expenses
  • Use tax reliefs correctly
  • Avoid costly mistakes or penalties
  • Plan ahead rather than reacting at year-end

Good advice often saves more than it costs.

When should I start planning to reduce Corporation Tax?

Ideally, throughout the year – not just at year-end. Regular reviews of income, expenses, and tax planning opportunities give you more control and often lead to better tax outcomes.


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Important

 

Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.

 

When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.

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