Tax Planning Strategies for UK Companies: A 2025-26 Guide

Corporation Tax is now the most significant recurring tax cost for most UK limited companies. With the main rate at 25% for profits above £250,000, and employer National Insurance contributions raised to 15% from April 2025, the decisions you make on structure, remuneration, and timing matter more than they used to. For a detailed breakdown of how these rate changes affect London-based businesses in 2025, see our Corporation Tax roadmap for 2025. Effective tax planning for companies is therefore essential. If you are new to Corporation Tax or want a solid grounding before exploring these strategies, our guide to understanding Corporation Tax covers the core fundamentals in detail. This guide covers the practical business tax planning strategies available to UK companies in 2025-26 – with accurate, current figures throughout.

Tax Planning and Understanding the Corporation Tax Rate Structure

The UK operates a tiered Corporation Tax system based on the level of taxable profit in the accounting period:

These thresholds are divided by the number of associated companies. If you have two associated companies, each threshold is halved – so the main rate kicks in at £125,000 of profit rather than £250,000. This is a commonly overlooked point for business owners with multiple entities. If you operate more than one company, it is worth reviewing how your overall structure is set up, read our guide on optimising corporate structure for tax efficiency to understand the full implications. This becomes particularly relevant for wider business tax planning decisions where group structures affect overall tax exposure.

Marginal relief explained: If your profits fall between £50,000 and £250,000, you do not pay a flat rate. Instead, marginal relief gradually increases your effective rate from 19% to 25% as profits rise. The formula is: CT at 25% minus (fraction × (upper limit − profits × upper limit/profits)). In practice, most companies use their accountant’s software to calculate this precisely.

Capital Allowances: Full Expensing and the AIA

The single biggest deduction available to most trading companies is capital allowances – tax relief for spending on plant, machinery, and equipment.

Full Expensing (Permanent from April 2023)

Full expensing allows companies to deduct 100% of the cost of qualifying new plant and machinery in the year of purchase. There is no cap on the amount that can be claimed under full expensing, and it has been made permanent. This means a company spending £500,000 on qualifying equipment can deduct the entire £500,000 from taxable profits in year one – saving £125,000 in Corporation Tax at the 25% rate.

Full expensing applies to main rate assets (most plant and machinery). Special rate assets (integral features, long-life assets) qualify for a 50% first-year allowance.

Annual Investment Allowance (AIA)

The AIA remains set at £1,000,000 per year. It covers new and used qualifying plant and machinery. For most SMEs, the AIA is sufficient for all capital spending – full expensing becomes relevant for larger capital programmes or for assets that do not qualify for AIA (such as cars). The AIA is shared between associated companies.

Director Remuneration: Salary and Dividends in 2025-26

The mix of salary and dividends remains the primary income-planning tool for owner-managed companies – but the April 2025 NIC changes have materially shifted the calculation.

The April 2025 NIC Changes

From 6 April 2025, employer National Insurance contributions increased from 13.8% to 15%, and the secondary threshold – the point at which employer NICs become payable – fell from £9,100 to £5,000 per year. This means employer NIC now applies to a larger slice of salary at a higher rate. Every director-shareholder should have revisited their optimal salary level as a result.

Example: In 2024-25, a director taking a salary of £9,100 paid no employer NIC (salary was exactly at the secondary threshold). In 2025-26, the same £9,100 salary attracts employer NIC of £615 (15% on the £4,100 above the new £5,000 threshold). The optimal salary level for directors has shifted.

Dividend Allowance: Now Just £500

The tax-free dividend allowance has been cut significantly in recent years. For 2025-26 it stands at £500 – down from £2,000 in 2022-23. This means only the first £500 of dividend income is received tax-free. Above that, dividend tax rates apply:

Dividends are paid from post-Corporation Tax profits. When you factor in Corporation Tax already paid on profits, the combined tax burden on dividends is higher than it appears from the rate alone. Your accountant can model the most efficient overall split based on your specific profit level, personal income, and household situation as part of wider tax planning strategies for UK companies.

Pension Contributions

Employer pension contributions remain one of the most tax-efficient ways to extract value from a company. They are:

• Fully deductible against Corporation Tax as a business expense
• Free from employer National Insurance (unlike salary)
• Free from employee income tax and NIC when paid directly into a pension

The annual allowance for pension contributions in 2025-26 is £60,000 per individual (or 100% of relevant earnings if lower). For director-shareholders drawing a modest salary, this limit may be lower – contributions are capped at the higher of earnings or £3,600.

For companies with profits approaching or exceeding the £250,000 main rate threshold, a well-timed employer pension contribution can bring taxable profits below the threshold, reducing the Corporation Tax rate – a meaningful saving. This is commonly used within business tax planning strategies to optimise profit positioning and reduce tax exposure.

R&D Tax Credits

If your company undertakes research and development, R&D Tax Credits can significantly reduce your Corporation Tax bill – or in some cases generate a cash repayment from HMRC. The current scheme (RDEC for larger companies, merged scheme for most claimants from April 2024) provides relief on qualifying R&D expenditure including staff costs, software, consumables, and subcontracted R&D.

R&D is broader than many businesses realise. It covers not just scientific research but any project that seeks to advance knowledge or capability in science or technology – including bespoke software development, engineering innovation, and process improvement projects.

Loss Relief

If your company makes a trading loss, you can use it in the following ways:

• Carry back one year: offset against profits of the immediately preceding accounting period, generating a repayment
• Carry forward: offset against future trading profits of the same trade
• Group relief: in a group structure, losses can be surrendered to offset profits in another group company in the same period

For companies with profits around the £50,000-£250,000 marginal relief band, careful management of losses and deductions can have an outsized impact by holding profits within the 19% rate band. If your company is navigating a difficult trading period, our guide on corporate tax strategies during economic downturns outlines how to manage your tax position when profits are under pressure.

Timing: Year-End Planning

The timing of income recognition and expenditure can significantly affect your Corporation Tax liability. Key year-end planning points include end of year tax planning strategies such as accelerating qualifying capital expenditure into the current year to use full expensing or AIA, making employer pension contributions before the year-end, reviewing whether to defer income or accelerate expenses, and declaring dividends based on shareholder tax positions.

Key year-end planning points include:

• Accelerating qualifying capital expenditure into the current year to use full expensing or AIA
• Making employer pension contributions before the year-end to increase the deduction in the current period
• Reviewing whether to defer income or accelerate expenses where there is flexibility
• Declaring dividends before or after the year-end depending on the personal tax position of shareholders

Employment Allowance

From 2025-26, the Employment Allowance has increased to £10,500 per year, and the previous £100,000 NIC eligibility cap has been removed. This means most employers can now offset up to £10,500 of their annual employer NIC liability. For small businesses with modest payrolls, this can eliminate employer NIC entirely – a meaningful saving in a year when employer NIC costs have risen sharply and should be factored into overall tax planning for companies.

Speak to an Accountant About Tax Efficiency Strategies

At Cigma Accounting, we help businesses across London develop practical tax planning strategies that support stronger financial control and long-term sustainability. From Wimbledon, including Motspur Park and New Malden, many companies only focus on tax at year-end, which often leads to missed opportunities for efficiency and cash flow improvement, so our approach focuses on proactive, year-round planning.

Effective tax planning is not about avoidance, it is about structuring your business decisions in a way that is compliant, efficient, and aligned with growth. With physical offices across London, we support business owners in making informed decisions that improve tax outcomes while ensuring full adherence to HMRC rules.