Corporation Tax Revenue Hits Record High – Eight Practical Planning Strategies to Reduce Your Tax Burden
- TBA
- Nov 28
- 4 min read
Since April this year, several new tax and employment regulations have come into effect, significantly increasing the tax burden for businesses in areas such as staffing, investment and profit distribution.
At the same time, HMRC’s annual corporation tax statistics show that as of March 2024, corporation tax revenue rose by 10% year on year, reaching a record £93.3 billion. Given that the main corporation tax rate has risen from 19% to 25% (with the ‘small profits rate’ of 19% applying to companies with profits of £50,000 or less), this increase is unsurprising.
However, a 30% tax rate rise compared with only a 10% rise in revenue suggests that taxable company profits across the UK are actually falling.
We have summarised several effective tax planning methods to help small and medium-sized enterprises legally and efficiently reduce their corporation tax burden and improve financial performance.
1. Claim every legitimate business expense
The most straightforward way to reduce your corporation tax liability is to ensure that you claim every allowable business expense. Any expenditure that is ‘wholly and exclusively’ for business purposes may qualify for deduction, thereby lowering your taxable profit. Many small business owners overlook this, simply because they are unsure which costs are eligible.
You can claim expenses such as:
Office equipment and software
Business travel and accommodation
Marketing and advertising costs
Subscriptions and training
Home office costs (for example, rent, electricity or broadband when working from home)
For instance, if your company spends £10,000 on legitimate business expenses, you can save £2,500 in corporation tax at the 25% rate.
Missing any deductible cost is, in effect, giving money away to HMRC.
2. Use the Annual Investment Allowance (AIA)
If your company purchases fixed assets such as machinery, computers or office furniture, you may be able to claim 100% tax relief through the Annual Investment Allowance (AIA). This allows you to deduct the full cost of qualifying assets from your taxable profits—up to £1 million each year.
This means that if you spend £50,000 on new equipment, you can deduct the entire amount from your taxable profits.
3. Offset losses to reduce future tax
If your company makes a loss in a financial year, you can use that loss to reduce future corporation tax bills. Losses can be carried back to offset previous profits or carried forward to offset future ones, reducing the tax due when the business becomes profitable.
For start-ups and growing businesses, this is an essential tax planning tool.
4. Invest in research and development (R&D)
If your company is developing new products, improving existing ones or enhancing operational processes, it may qualify for R&D tax relief.
Eligible businesses can reclaim up to 27% of qualifying R&D expenditure, usually in the form of a tax credit.
Even if the project is unsuccessful, you can still claim this relief. It is crucial to maintain clear records of all R&D costs, such as materials and subcontractor expenses.
5. Combine different tax reliefs strategically
In a climate of rising costs and taxes, using multiple reliefs together can help protect profit margins.
Beyond the R&D Tax Relief that supports innovation in technology and manufacturing, the UK government offers several other incentives:
Small Business Rates Relief, which can save retail and hospitality businesses thousands of pounds in business rates annually
Well-designed employee benefit packages that consider Benefit-in-Kind tax rules may allow you to boost staff satisfaction while optimising company tax efficiency
6. Reduce corporation tax through charitable donations
Charitable giving not only reduces tax but also enhances corporate reputation and social impact.
Donations can take the form of cash, shares, equipment or pro bono services, but they must be unconditional and made to a charity recognised by HMRC.
7. Structure your income efficiently as a director-shareholder
If you are a company director or shareholder, one of the most effective tax strategies is to receive a mix of salary and dividends, rather than all income as salary.
Paying yourself a modest salary (within your personal allowance or slightly above the National Insurance threshold) ensures National Insurance contributions are covered, while the remainder can be taken as dividends, which are usually taxed at lower rates.
8. Plan tax payments in advance
Corporation tax is normally due nine months and one day after the end of your company’s accounting period. Setting aside tax reserves in advance helps avoid cash flow problems and ensures smooth payments.
The view from TB Accountants
In recent years, the decline in taxable profits among UK businesses may partly be due to the effects of capital allowance policies, but it may also reflect the deterrent impact of the higher corporation tax rate on foreign investment.
Tax planning is essential for every business. During the filing process, companies should ensure accuracy of data, maintain complete records and assess eligibility for all available reliefs in advance.
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