Corporation Tax Reliefs
and Deductions

Corporation Tax is charged on the taxable profits of UK limited companies. For 2026, companies with profits up to £50,000 are normally within the 19% small profits rate, while profits above £250,000 are generally taxed at the 25% main rate. Companies between those limits may benefit from Marginal Relief, subject to the detailed rules and associated company adjustments.

Effective Corporation Tax planning is not about aggressive schemes. It is about claiming the HMRC-approved reliefs, deductions, and allowances that apply to your business. From everyday expenses and capital allowances to R&D, Patent Box, trading losses, and sector-specific incentives, a structured review can make a meaningful difference to the final tax bill.

Why Corporation Tax Reliefs Matter

Most companies start with accounting profit, then adjust that figure for tax. Disallowable costs are added back, allowable deductions and reliefs are claimed, losses and credits are considered, and the correct Corporation Tax rate is applied. Small mistakes in this process can mean a company pays more tax than necessary or misses a valuable cash-flow opportunity.

1. Allowable Business Expenses

The starting point for reducing taxable profits is claiming all allowable business expenses. HMRC generally allows deductions for costs incurred wholly and exclusively for business purposes. Common examples include employee salaries and wages, employer pension contributions, office rent, utilities, business rates, marketing, professional fees, software subscriptions, insurance, recruitment, staff training, business travel, repairs, and maintenance.

Some costs are not normally deductible for Corporation Tax, including client entertainment, fines and penalties, depreciation, and dividends paid to shareholders. Good bookkeeping and clear supporting evidence help ensure every valid deduction is claimed without creating compliance risk.

2. Capital Allowances

When a company buys equipment, machinery, vehicles, or other capital assets, the cost is usually relieved through capital allowances rather than as an ordinary expense. The Annual Investment Allowance gives a 100% deduction on qualifying plant and machinery purchases up to £1 million for a 12-month accounting period, while full expensing can give companies a 100% first-year deduction on qualifying new plant and machinery.

3. Research and Development Tax Relief

R&D Tax Relief remains one of the UK's most valuable business incentives, but claims must be carefully prepared. Eligible projects usually need to seek an advance in science or technology and involve technical uncertainty that competent professionals could not easily resolve. Qualifying expenditure may include staff costs, pension contributions, National Insurance, materials, consumables, software, cloud computing, data costs, and certain subcontracted R&D costs.

Software development, engineering improvements, manufacturing innovation, and process optimisation may all qualify where the project meets the rules. Many companies overlook genuine qualifying activity, while others claim too broadly. A strong technical narrative and clear cost evidence are essential.

4. Patent Box Relief

Patent Box allows qualifying profits generated from patented inventions to be taxed at an effective Corporation Tax rate of 10% rather than the standard rates. To qualify, businesses usually need to own or exclusively license qualifying patents, undertake qualifying development activity, generate income from patented products, processes, or licences, and elect into the Patent Box regime through the Corporation Tax return.

5. Creative Industry Tax Reliefs

The UK offers specialist tax incentives to support creative sectors. Reliefs or expenditure credits may be available for qualifying companies involved in film production, high-end television, animation, children's television, video game development, theatre productions, orchestral performances, and museum or gallery exhibitions. Depending on the scheme, companies may receive enhanced deductions or expenditure credits, even when loss-making.

6. Trading Loss Relief

Companies that incur trading losses have several options for obtaining tax relief. Losses can generally be carried back against profits of the previous accounting period, carried forward and offset against future profits, transferred within qualifying groups through group relief, or used as terminal loss relief when a company ceases trading. Effective use of losses can improve cash flow and reduce future tax liabilities.

7. Other Valuable Corporation Tax Reliefs

Other reliefs may apply depending on the nature of the company. Substantial Shareholding Exemption can exempt qualifying gains on the sale of shares in a trading subsidiary. Land Remediation Relief can provide a 150% tax deduction for qualifying expenditure on contaminated or derelict land. Intangible Fixed Assets Relief may apply to certain intellectual property, licences, goodwill, and other intangible assets.

Interest on business borrowing is generally deductible, although restrictions can apply to larger groups with significant financing costs. Employer pension contributions to approved pension schemes are also generally deductible for Corporation Tax purposes and can be an effective planning tool when commercially justified.

8. Calculating Taxable Profits Correctly

A strong Corporation Tax computation usually starts with accounting profit before tax, adds back disallowable expenses, deducts capital allowances and reliefs, adjusts for non-trading items, applies available losses, calculates taxable profits, applies the correct Corporation Tax rate, and deducts eligible tax credits. Accurate records and a robust computation are essential for compliance and for maximising relief claims.

Why Professional Advice Matters

Many businesses fail to claim all available Corporation Tax reliefs because the rules are complex and frequently updated. Professional tax advisers can identify opportunities that may otherwise be missed, check that claims are supported by evidence, and provide planning strategies that reduce future liabilities while keeping the company compliant with HMRC requirements.

Speak to Ency & Line

Corporation Tax reliefs can significantly reduce the tax burden on UK companies when used correctly. From allowable expenses and capital allowances to R&D relief, Patent Box, trading losses, and specialist sector incentives, regular reviews can help ensure every available relief is claimed. Contact Ency & Line for practical Corporation Tax advice tailored to your company.