Reduce Your Corporation Tax
in London
Reduce Your Corporation Tax in London: 8 Legal Strategies That Work
If you run a London limited company, there are practical and fully legitimate ways to reduce your corporation tax in London. The key is timing. Most effective planning needs to happen before your accounting year end, while there is still time to make pension contributions, review expenses, invest in equipment, or structure profit extraction properly.
Corporation tax planning is not about hiding income or using aggressive arrangements. It is about claiming the allowances, reliefs, and deductions that UK tax rules already provide. For many London SMEs, the difference between reactive filing and proactive planning can be thousands of pounds each year.
The Corporation Tax Position in 2026
The main corporation tax rate is 25% for companies with profits above £250,000. Companies with profits of £50,000 or less usually pay the small profits rate of 19%, while marginal relief can apply between £50,000 and £250,000. These thresholds are reduced where companies are associated, so groups and companies under common control need a more careful calculation.
| Profit position | Planning focus |
|---|---|
| Up to £50,000 | Claim every allowable expense and preserve cash flow. |
| £50,001 to £250,000 | Apply marginal relief correctly and plan deductions before year end. |
| Above £250,000 | Review capital allowances, pensions, R&D, losses, and group structure. |
1. Claim Every Allowable Business Expense
Every legitimate business cost reduces taxable profit directly. Commonly missed claims include home office costs, business mileage, software licences, professional subscriptions, relevant training, accountancy fees, insurance, marketing, and business travel. The expense must be genuinely for the business and supported by records.
2. Use Capital Allowances and Full Expensing
When a company buys qualifying plant, machinery, equipment, or technology, capital allowances can reduce taxable profits. Full expensing allows companies to deduct 100% of qualifying new and unused plant and machinery in the year it is bought. The Annual Investment Allowance can also give a 100% deduction on qualifying expenditure up to £1 million, while a 40% first-year allowance applies to certain new and unused main-rate plant and machinery bought on or after 1 January 2026.
3. Optimise Director Salary and Dividends
For director-managed companies, how profits are extracted affects the combined tax cost for both the company and the individual. A properly planned mix of salary, dividends, pension contributions, and retained profits can reduce unnecessary National Insurance and keep the company deduction position efficient. The right structure depends on salary levels, other income, available allowances, and commercial cash needs.
4. Make Employer Pension Contributions
Employer pension contributions can be one of the strongest ways to reduce your corporation tax in London while building long-term personal wealth. Where the contribution is wholly and exclusively for the business and within pension rules, it is normally deductible for corporation tax and does not attract employer National Insurance in the same way as salary.
High-impact planning areas
- Expenses— recover missed claims and keep evidence before filing.
- Capital allowances— time equipment and technology purchases before year end where commercially sensible.
- Pensions— consider employer contributions as part of director remuneration planning.
- Marginal relief— check the CT600 calculation where profits sit between £50,000 and £250,000.
5. Claim R&D Tax Relief Where You Qualify
If your company is developing new products, software, processes, or technical solutions, it may qualify for R&D tax relief. For accounting periods beginning on or after 1 April 2024, many claims fall under the merged R&D expenditure credit scheme, which provides a taxable credit at 20% of qualifying expenditure. Claims must be carefully evidenced, and HMRC expects a clear explanation of the scientific or technological uncertainty being addressed.
6. Apply Marginal Relief Correctly
If company profits are between £50,000 and £250,000, marginal relief may reduce the corporation tax bill from the full 25% main-rate position. This is often missed where accounts are filed quickly, where associated companies are not reviewed, or where the director assumes the main rate applies to all profits. A correct marginal relief calculation can make a meaningful difference.
7. Use Trading Losses Properly
Losses from earlier accounting periods should not be forgotten. Trading losses may be carried forward and offset against later profits, and in some cases losses can be carried back to generate a repayment. Young companies, project-based businesses, and companies recovering after a difficult year should track losses carefully so future profits are not overtaxed.
8. Make Qualifying Charitable Donations
Company donations to UK-registered charities and Community Amateur Sports Clubs can usually be deducted from total business profits for corporation tax purposes. The donation must be genuine, properly recorded, and not part of an artificial arrangement. Used correctly, charitable giving can support good causes while reducing taxable profit.
Worked Example: How Planning Can Change the Tax Bill
The example below is simplified, but it shows why year-end planning matters. Actual savings depend on the company, profit level, associated companies, available reliefs, and the timing of expenditure.
| Item | Amount |
|---|---|
| Gross trading profit | £200,000 |
| Recovered allowable expenses | - £18,000 |
| Employer pension contribution | - £30,000 |
| Capital allowances on equipment | - £22,000 |
| Taxable profit after planning | £130,000 |
| Estimated tax saving | Potentially around £19,750, depending on the final marginal relief calculation. |
Why Timing Matters
Many corporation tax-saving opportunities cannot be fixed after the year end. Pension contributions need to be paid, capital purchases need to be made, expense records need to exist, and remuneration planning needs to reflect real decisions made during the year. If the first tax conversation happens only when the CT600 is due, the best opportunities may already have passed.
Ready to Reduce Your Corporation Tax in London?
ENCY&LINE works with London limited companies on proactive corporation tax planning, CT600 filing, year-end reviews, director remuneration, capital allowance claims, and HMRC compliance. We help you understand what can be claimed, what needs evidence, and what action should happen before your next accounting period closes.
You can reduce corporation tax legally by claiming allowable expenses, using capital allowances, making qualifying employer pension contributions, applying marginal relief, using trading losses, and claiming approved reliefs such as R&D where the company qualifies.
The main corporation tax rate is 25% for profits above £250,000, the small profits rate is 19% for profits up to £50,000, and marginal relief can apply between those limits.
Employer pension contributions can normally reduce taxable profits where they meet business and pension rules. They should be planned before year end and documented properly.
Full expensing lets companies deduct 100% of the cost of qualifying new and unused plant and machinery from taxable profits in the year the asset is bought.
Planning should happen before the accounting year end. After the year ends, many actions such as pension payments, equipment purchases, and remuneration decisions may no longer be available for that period.
Plan before year end and keep more profit in the business
