Corporation Tax Savings for Growing Limited Companies: A 2026/27 Guide
By Callum Ollerenshaw, Director – Traction Accountancy Ltd
Most limited company owners think about corporation tax once a year, usually when their accountant sends the bill. By that point, the majority of the options that could have reduced it are already off the table. The businesses that consistently pay less tax are not doing anything complicated, they are just having the right conversations at the right time of year.
This guide covers the main areas worth reviewing for the 2026/27 tax year.
Know which rate you're actually paying
For 2026/27, the corporation tax rate depends on your company's taxable profit:
- Profits up to £50,000, taxed at the small profits rate of 19%
- Profits over £250,000, taxed at the main rate of 25%
- Profits between £50,000 and £250,000, taxed at 25%, reduced by marginal relief, which tapers the effective rate between roughly 19% and 25%
Before you can plan around corporation tax, you need to know which bracket you are currently in and whether you are sitting close to one of those thresholds, because that’s where the right planning can make the biggest differences.
Check whether the associated companies rules apply to you
If you own more than one active company, a trading company and a property company, for example, or a group structure, the £50,000 and £250,000 thresholds above are divided by the number of associated companies. Two associated companies effectively halves both thresholds, meaning you can be pushed into paying the main 25% rate on far lower profits per company than you'd expect. This is one of the most commonly missed factors in corporation tax planning for businesses that have grown into more than one entity, and it's worth reviewing your structure specifically against this rule rather than assuming it doesn't apply.
Use the Annual Investment Allowance for immediate tax savings
The Annual Investment Allowance currently lets you deduct the full cost of most equipment and machinery, up to £1,000,000, against profits in the year you buy it. For a business planning a capital purchase such as new machinery, vans, or IT infrastructure, timing that purchase before your year-end rather than just after it can bring forward a significant amount of tax relief into the current year. This is one of the simplest and most reliable corporation tax savings available to growing businesses, and it's often overlooked.
Use pension contributions to reduce taxable profit
Employer pension contributions are deductible against corporation tax and are not subject to Income Tax or National Insurance for the director or employee receiving them. For a business with profit sitting in the marginal relief band, or comfortably above £250,000, a pension contribution made before year end can reduce taxable profit directly. Unlike a dividend, it isn't limited to distributable reserves in the same way, since it's a company expense rather than a distribution of profit, making it one of the most effective corporation tax savings tools available to owner managed businesses.
Electric vehicles
If your business needs a vehicle, the tax case for going electric is strong. A company-owned electric vehicle currently attracts a benefit in kind rate of just 2%, meaning the personal tax cost to you as a director is minimal compared to a petrol or diesel equivalent. On top of that, the company can claim a 100% first year allowance on the purchase, giving you full tax relief in the year of acquisition rather than over several years. If you are considering a new vehicle, it is worth running the numbers on whether purchasing through the company makes more sense than buying personally.
Business mileage
If you use your personal vehicle for business travel, the company can reimburse you at the HMRC approved mileage rate of 55p per mile for the first 10,000 miles and 25p per mile thereafter (previously 45p/25p). These payments are tax-free to you and deductible for the company. If the company is not already reimbursing you for every business mile you drive, you are effectively subsidising the business out of your own pocket and missing a straightforward tax deduction in the process.
Trivial benefits
HMRC allows companies to provide directors and employees with small gifts and perks without any tax or NIC consequences, provided each individual benefit costs no more than £50, is not cash or a cash voucher, and is not provided as a reward for performance. For directors of close companies, the annual cap is £300. On top of this, the company can also fund an annual staff event, such as a Christmas party, of up to £150 per head, again free of any tax consequences provided the event is open to all employees. Used properly, these allowances are a simple and often overlooked way to extract small amounts of value from the company tax-free.
Business expenses paid personally
Any legitimate business expense you pay for out of your own pocket should be claimed back through the company. This includes things like subscriptions, software, office supplies and professional development. The company gets a tax deduction, you are reimbursed without any tax consequence, and the transaction is straightforward to document. The key is keeping receipts and logging what the expense was for, HMRC expects expenses to be wholly and exclusively for business purposes, so the record keeping matters.
Plan extraction and corporation tax together, not separately
How you take profit out of the business, whether through salary, dividends, or pension, affects your corporation tax position as well as your personal tax bill, and the two decisions shouldn't be made in isolation. Salary is a deductible expense that reduces corporation tax; dividends are paid from profit after corporation tax has already been charged. A review that only looks at your personal tax position, without checking the effect on the company's corporation tax bill, is only half the picture, and often leaves genuine tax savings on the table.
A worked example
A director forecasts £180,000 profit before the year end. Without any action, the corporation tax bill will be £43,950. By bringing forward a £15,000 equipment purchase they were planning anyway and making a £15,000 employer pension contribution into the directors’ pension, rather than paying an additional dividend, taxable profit falls to £150,000 and the tax bill drops to £36,000, saving £7,950 in corporation tax. The company gets the equipment it needed, the director gets a £15,000 boost to their pension, and neither move involved spending money that wasn’t already going to be spent.
FAQs
When should corporation tax planning actually happen?
Ideally as an ongoing conversation throughout the year, with a formal review three months before your year end, early enough that spending, pension contributions, and income timing can still be adjusted to maximise your tax savings.
Can anything still be done after the year end has passed?
The most valuable levers for corporation tax savings (timing of spend, pension contributions, extraction structure) are only available before the year end, which is why leaving this to your accountant at filing time usually means opportunities have already gone.
Does the associated companies rule affect a single trading company?
No, it only applies if you have more than one active company. But it's worth checking formally rather than assuming, particularly if you also hold a property company or another entity alongside your main trading business.
Get ahead of your corporation tax savings
Every one of the levers above needs lead time to actually work. We offer proactive corporation tax planning for our clients several months ahead of their year-end, specifically so nothing here is left until it's too late to act on.
Figures and rates correct for the 2026/27 tax year and subject to change. This article is general guidance, not personalised tax advice.