Strategies for Reducing Corporation Tax in 2024/25

The recent increase in the Corporation Tax basic rate to 25% has significantly heightened the tax burden for many companies. In light of this, it is imperative for businesses to explore viable strategies to mitigate their Corporation Tax liabilities and ensure they pay only what is necessary. Here is DabHand Accounting’s guide to the various techniques that businesses can employ to reduce their tax outlay, enhancing their financial efficiency and sustainability.

Capital Allowances

Capital allowances represent a vital means for companies to obtain tax relief for the depreciation on tangible assets. These assets include equipment, machinery, and business vehicles, among others. The Annual Investment Allowance currently gives companies full tax relief on purchases of equipment and assets of up to £1M.

Full Tax Relief on Capital Expenditure

For corporations, full tax relief on capital expenditure is a substantial benefit. This relief allows companies to deduct the full cost of qualifying assets from their profits before tax in the year of purchase. This can lead to significant tax savings, particularly for businesses that invest heavily in capital equipment.

Claiming R&D Tax Relief

Research and Development (R&D) Tax Relief supports companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. Even if the project does not succeed, the company can still claim the relief, making it a powerful incentive for innovation.

Patent Box Tax Relief

The Patent Box regime enables companies to apply a lower Corporation Tax rate of 10% on profits earned from patented inventions. This considerable reduction can result in massive savings for companies that can take advantage of this relief, encouraging them to retain and commercialise existing patents and to develop new patented innovations.

Minimising Cross-Border Taxes

International businesses must manage cross-border tax implications effectively. Structuring the business to take advantage of international tax treaties and managing transfer pricing properly can reduce tax liabilities significantly. Professional advice in this area can yield substantial tax savings while ensuring compliance with international tax laws.


Contributions to pension schemes are tax-free and can be used to reduce the overall Corporation Tax. By contributing to employees’ pensions, companies not only support their employees’ future financial security but also reduce their taxable profits.

Restructuring for Efficiency

As businesses grow, their operations may become complex and inefficient from a tax perspective. Restructuring the business, such as by separating different activities into distinct entities, can help in achieving more efficient tax arrangements and reducing tax liabilities.

Share Incentives

Offering share incentives to employees can be an effective way to attract and retain key staff. It also provides tax advantages as certain types of share schemes are tax-efficient for both the employer and the employee.

Tax-Free Disposals of Subsidiaries

Selling a subsidiary can be structured in a way that the gains from the sale are not subject to Corporation Tax. This requires careful planning to ensure compliance with tax laws but can be a strategic move to optimise tax liabilities.

Efficient Remuneration Strategies

With high combined rates of Income Tax and National Insurance of 48%, it is essential to regularly review the most tax-efficient methods of remuneration. Options such as dividends, which may be taxed at lower rates than salary, can offer significant savings.

Optimising Tax Relief for Losses

Companies can reduce their tax bill by offsetting losses against future profits or by claiming relief against past profits, resulting in a tax refund. Understanding the best way to utilise these losses can help in maintaining cash flows and reducing overall tax costs.

Reinvestment of Proceeds from Asset Sales

Reinvesting the proceeds from the sale of business assets can defer the recognition of capital gains, thereby deferring any related tax liabilities. This strategy allows businesses to manage cash flows more effectively and to plan for future investments wisely.

Receiving Rent from the Business

If a business owner also owns the property from which the business operates, charging rent to the business can be a tax-efficient way to extract profits from the business. However, this must be done at a market competitive rate to comply with tax regulations.

By implementing these strategies, UK businesses can significantly reduce their Corporation Tax liabilities. Each business is unique, and therefore, it is advisable to consult with a tax professional to tailor these strategies to specific business needs and circumstances.

Strategies for Reducing Corporation Tax
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