Running a successful business feels great, but watching a chunk of your hard-earned profits head straight to HMRC is always a hard pill to swallow.
The good news is that with a bit of forward-thinking and some savvy planning, you can legally reduce your corporation tax bill and keep more of that money working in your business, not out of it.
Here are five smart, fully HMRC-approved ways to do just that.
- Claim every allowable expense
You might be surprised at just how many legitimate business expenses are overlooked every year. These can add up fast and every pound you claim brings down your taxable profit.
Some commonly missed claims include:
- Office rent and bills
- Business insurance
- Advertising and marketing costs
- Professional services (accountants, legal advice, consultants)
- Salaries and employer NICs
- Home office expenses (yes, even a portion of your broadband!)
Top Tip: Don’t leave it all until year-end, track as you go using cloud accounting software like Xero or QuickBooks.
- Pension contributions: A win-win
If you’re a limited company director, your business can contribute to your pension and it’s one of the most tax-efficient ways to extract profit.
Why it works:
- Company pension contributions are tax-deductible
- There’s no employer NIC to pay on them
- You personally don’t pay income tax on the contributions made by the company
Top Tip: Chat with a financial adviser to set up a pension plan that suits your future goals and makes the most of annual contribution limits.
- Get smart with timing
Keeping an accurate track on income and expenses can make a difference to your year-end tax position.
Here’s how to think about it:
- Bring forward expenses, planning a big purchase? If your year-end is looming, buying now could reduce this year’s taxable profit.
- Delay income. If you’re expecting a big invoice payment and you’re close to the year-end, deferring it into the next accounting period (if it makes commercial sense) could be beneficial.
Top Tip: Your accountant can help time things just right, so don’t leave planning until the eleventh hour.
4️. Make the most of the annual investment allowance (AIA)
Need to buy equipment, machinery, or tech? The AIA allows you to deduct the full cost of qualifying purchases (up to the annual limit) from your profits.
What’s eligible?
- IT equipment
- Tools and machinery
- Office furniture
- Commercial vehicles (but not cars)
Top Tip: Plan capital purchases before your year-end to ensure you can claim them in the current accounting period.
5️. Salary + dividends = A balanced approach
As a director, you’ve got flexibility in how you pay yourself and the right mix can make a big difference to your tax bill.
The general strategy?
- Take a modest salary (typically under the NIC threshold)
- Top up with dividends, which are taxed at lower rates than income
- Stay mindful of tax bands to avoid unnecessary higher-rate tax
Top Tip: A quick annual review with your accountant can help fine-tune your pay structure for maximum efficiency.
Remember – Plan ahead, stay ahead!
When it comes to cutting your tax bill, it’s all about being proactive. The earlier you start planning, the more options you’ll have and the less likely you are to be caught off guard by a surprise liability.
Remember tax efficiency isn’t just about saving money, it’s about putting your business in the best possible position for future growth.
For any accountancy help please reach out to our team. Call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk. You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
