How to Reduce Your Corporation Tax Bill in the UK Legally 

Leverage allowances, credits, and timing hacks to keep more profits in your business.

Feeling squeezed by a 25% corporation tax rate on your hard-won profits?
Watching HMRC claim nearly a quarter of every pound can sting—especially when legal reliefs go unused.
Let’s fix that: here are five proven, 100% legal strategies to cut your 2025 UK tax bill.

1. Supercharge Deductions with Capital Allowances

What it is: From April 2023, full expensing lets you deduct 100% of qualifying plant & machinery costs immediately—on top of the £1 million Annual Investment Allowance (AIA).

• Capital allowance explanation
  
  

Why it helps: Instead of spreading depreciation over years, you wipe out taxable profits today, slashing your effective rate.
Quick tip: Plan major equipment purchases just before your year-end to maximise this one-year write-off.

2. Tap Lucrative R&D Reliefs for Innovation

What it is: Under the merged Research and Development Expenditure Credit (RDEC) scheme, SMEs can deduct an extra 86% of qualifying R&D spend from profits. If loss-making, they can surrender losses for a 10% cash credit (or up to 27% if you’re R&D-intensive).

Why it helps: Whether you're developing software, engineering processes, or new products, every £1 spent can cut your tax bill by up to £0.27.
Quick tip: Keep crisp project records and claim within 6 months of your period-end to avoid missing deadlines.

3. Harness the 10% Patent Box Rate

What it is: Profits from commercialising UK or European patents attract a 10% effective corporation tax rate instead of 25%.

• Patent Box Scheme – GOV.UK
  
  

Why it helps: If you license or sell patented tech, you’re legally paying 60% less tax on that income slice.
Quick tip: Elect into the scheme within two years of your accounting-period end and track IP-related revenues carefully.

4. Optimise Loss Relief & Group Relief

What it is:

• Carry back: Apply trading losses against prior-year profits to pocket a refund.
  
  

• Carry forward: Offset future profits to smooth peaks.
  
  

• Group relief: Transfer losses between 75%-owned companies in your corporate family.
  
  

• Corporate Tax Loss Reliefs – University of Oxford Journal
  
  

Why it helps: Losses needn’t go to waste—matching them to profit years or group-wide surpluses can recoup cash or zero-out big tax bills.
Quick tip: Forecast your P&L across the group each quarter to decide whether to surrender or carry forward.

5. Timing & Prepayment Strategies

What it is: Shift deductible costs—and even some revenues—across accounting periods.
Why it helps: Pushing expenses into a high-profit year or deferring income into a low-profit year smooths taxable profits. This can drop you into the 19% small-profits band (profits ≤ £50,000) instead of 25%.
Quick tip: Prepay next year’s rent, insurance, or subscriptions before your year-end—and discuss with your adviser whether to accelerate customer invoices.

Bonus: Stay Ahead of VAT and GST Changes in 2025

Reducing corporation tax isn’t just about current deductions. Keep tabs on indirect tax changes that could affect your compliance or reclaim positions.

• New VAT Rules Coming July 2025 – What Startups Must Know
  
  

•  Solving VAT Errors – GitHub Wiki Guide
  
  

 GST/HST Credit 2025–2026: Who Qualifies