Corporation Tax Deduction: Simple Ways to Cut Your UK Tax Bill

If you run a limited company in the UK, you’re already paying corporation tax on your profits. But guess what? Not every pound you earn is taxable. By using the right deductions, you can lower your tax bill and keep more cash for growth.

Common Deduction Areas

First up, expenses that keep your business ticking. Anything you spend that is "wholly and exclusively" for trade can be deducted. That includes office rent, utilities, and the cost of equipment like laptops or forklifts. Even software subscriptions count, so your cloud‑based accounting tool is a legit write‑off.

Travel and mileage also fall under this umbrella. If you drive a company car or use your own vehicle for client meetings, keep a mileage log and claim the approved rates. Remember, meals while traveling count, but everyday lunch at the office does not.

Another big one is staff costs. Salaries, National Insurance, pension contributions, and training fees are all deductible. If you hire a freelancer, their fees can be claimed too, provided the work is directly related to your trade.

Don’t forget depreciation. Instead of writing off the full cost of a big asset in one year, you can spread the deduction over its useful life using capital allowances. For most plant and machinery, the annual investment allowance (AIA) lets you claim up to £1 million in the first year – a massive tax saver.

How to Claim and Keep Records

The claim process is straightforward: list all deductible items on your corporation tax return (CT600) and attach supporting schedules. HMRC expects clear records, so store invoices, receipts, and bank statements for at least six years. A digital filing system works fine as long as the files are legible and dated.

When you’re unsure whether an expense qualifies, ask yourself two questions: Is the spend directly linked to generating income? And would a reasonable third party see it as a business cost? If you can answer yes to both, you’re probably safe.

For larger deductions like R&D tax credits or capital allowances, you may need to include a detailed claim narrative. Explain the project, the costs incurred, and the expected benefit. The extra paperwork can feel daunting, but many businesses miss out on valuable relief simply because they skip this step.

Finally, plan ahead. Look at your projected profits at the start of the year and schedule major purchases or training sessions before the tax year ends. Timing can make a big difference – a purchase in March can reduce your taxable profit for that year, while a similar spend in April pushes the benefit to the next tax year.

In short, corporation tax deductions are about matching genuine business costs to your profit figure. Keep good records, claim everything you’re entitled to, and you’ll see a healthier bottom line without breaking any rules.