Last Updated on 25/02/2025 by Adrian Lamb
Best Ways to Save on Corporation Tax in 2025
Here at O’Boyle Accounting and Taxation, we have lots experience of setting up new systems to help control costs and monitor spending. Our team consists of good problem solvers and always look at the most practical ways to achieve the best results. Corporation tax is the fourth biggest source of revenue for the UK Treasury and in this article, we will discuss the best ways to save on corporation tax in 2025.
We will ask the right questions because we know your business is unique, your own circumstances are unique and we want to help you save costs (and tax especially). Most of our clients run small businesses so we understand what’s important to help you grow your venture.
What is corporation tax?
Corporation tax is charged on income from trading (i.e. from the sale of goods and services) and investments, minus day-to-day expenses (known as ‘current’ or ‘revenue’ expenditure, which includes wages, raw materials and interest payments on borrowing) and various other deductions, notably allowances for investment costs. It is also charged on capital (‘chargeable’) gains, the profit from selling an asset for more than it cost. If a company makes a loss – its costs exceed its revenue – it can, subject to restrictions, set the loss against profits it makes in other years.
It is levied on the profits of companies operating in the UK (the profits of unincorporated businesses – sole traders and partnerships – are subject to income tax rather than corporation tax). Companies operating in more than one country are, broadly speaking, taxed on the profits that are deemed to have arisen from UK-based assets and production activities. Different rates of corporation tax have, at various times, been applied to banking, North Sea oil and gas production, companies with small profits, and profits earned from patented technologies. The evolution of these rates is shown in the chart below.
Claim business expenses where possible
One of the easiest and most effective ways to reduce corporation tax is by claiming your business expenses.
To claim expenses, you’ll need to keep detailed records of every cost, from receipts to invoices. It’s crucial, as HMRC could request proof during an audit. Every pound you spend on running your business, whether it’s on office supplies, software, rent, or even mileage, can be deducted from your profits, thereby lowering the amount of tax you owe. Many business owners hire an accountant to help make sure all claims are accurate and meet HMRC standards. If not, accounting software can help you stay organised and compliant.
Surprise HMRC with an early payment and they’ll owe you interest
Paying HMRC early may sound counterintuitive, but it’s a smart move if you want to reduce your tax bill. That’s right – if you stay on top of your tax affairs and can pay your Corporation Tax bill early, HMRC will actually give you some of it back in the form of interest.
Transfer vehicles to the company’s name
Does your business use vehicles? If so, transferring them into the company’s name can help in reducing corporation tax. When a vehicle is owned by the business, expenses like fuel, insurance, and maintenance can be deducted, shrinking your taxable profits.
To make this switch, notify the DVLA and ensure all paperwork reflects the vehicle as a business asset. Keep accurate mileage records, especially if the vehicle is used for personal and business purposes, to stay compliant with HMRC.
Go shopping
If you need a new laptop or phone for business use, buying them through your company is the most tax-efficient way to get your new kit. If you’re in need of a slightly heftier piece of equipment, new premises or other assets, you can take advantage of the Government’s Annual Investment Allowance.
