Corporate Tax Planning Strategies for UK Businesses

Preparing for tax deadlines and ensuring there’s money available to pay what’s owed is an ever-present challenge for small businesses – one further complicated by rising costs, seasonal fluctuations and other economic factors. Corporate tax planning helps you operate efficiently throughout the financial year and avoid penalties from HMRC.

In this article, we discuss the importance of corporate tax planning, including ways to reduce your bill and leverage relief opportunities. We also outline the key tax deadlines and thresholds your business needs to know.

What is corporate tax planning and why does it matter?

The objective of corporate tax planning is to proactively manage a company’s tax liabilities and optimise its approach to meeting its obligations. This includes identifying ways to reduce tax bills, such as leveraging eligible relief and allowances, aligning tax payments with cash flow and remaining compliant with HMRC’s rules.

The UK Government said it is “committed to providing stability and predictability in the business tax system” in its Corporate Tax Roadmap pdf, published in October 2024, alongside the Autumn Budget (where it capped the top rate of Corporation Tax at 25%). However, businesses are still feeling the pressure of cumulative running costs, including looming employer National Insurance Contributions (NIC) increases. iwoca research found that future tax rises are among the main concerns of UK business owners, with two in five SMEs (42%) cite rising costs and taxes as their biggest worries. 

So, conducting good corporate tax planning strategies and being better prepared for filing/payment deadlines can ease the pressure while reducing the risks of incurring penalties from HMRC.

Benefits of corporate tax planning and management for UK businesses 

• Maximising the use of government tax relief and incentives, such as R&D tax credits and capital allowances 
• Reducing tax liabilities and increasing post-tax profits
• Easing compliance concerns and avoiding inaccurate or late tax returns and missed payments, which lead to penalties from HMRC or legal issues
• Improving cash flow management
• Boosting working capital to invest in key assets, talent and expansion plans

How to reduce your Corporation Tax bill legally

The tax that businesses owe the government is subject to change, based on money earned during the financial year, what expenditure is tax-deductible, and the latest government rules. So, it’s important to see where you can reduce your Corporation Tax bills legally. We say “legally” because companies can get into hot water if they’re deemed to be avoiding tax. 

It’s not about looking for loopholes, but rather ways to be tax-efficient and ensure you leverage deductions, deferrals and allowances available to your business.

What are the most effective corporate tax planning strategies?

Seeking ways to minimise business tax liabilities, including taking advantage of eligible tax deductions, timing expenditures and managing income wisely within accounting periods, is the nature of corporate tax planning. 

Here are some of the most effective corporate tax planning strategies:

• Spreading income to reduce taxable profits: Understand your income/profit thresholds and defer certain income to the next financial year, where possible.
• Accelerating expenses: Conversely, bringing deductible expenses forward is another way to minimise taxable income in a particular financial period.
• Leveraging capital allowances: Determine what expenses and assets are exempt from Corporation Tax, such as vehicles, machinery and other equipment critical to operating your business.
• Using suitable/viable tax relief schemes: Consider all tax relief opportunities, such as R&D relief, EV schemes (which include 100% first-year allowances, zero-emission vehicles and charging points) and other government incentives.
• Maximising VAT efficiency: Keep accurate and comprehensive records for VAT reclaiming opportunities and avoiding compliance issues, and leverage eligible VAT schemes to reduce/delay liabilities, such as the Cash Accounting Scheme.
• Dividend planning: Smart dividend distribution can increase tax efficiency. Although dividends must be paid from post-tax profits, unlike salaries, they’re not subject to NI contributions.
• Structuring/staggering tax payments: Utilise ways to structure payments to align with your cash flow, including agreeing to longer payment terms or applying for dedicated tax repayment plans that spread outstanding liabilities.
• Carrying forward trade losses: Certain trade losses can be carried forward into future tax years and be offset against future profits.
• Using pension contributions as a tax-saving tool: Employer pension contributions to staff pensions are fully deductible from taxable profits and, therefore, beneficial for your business and its employees’ financial future.
• Optimising your business structure: Evaluate which legal entity structure is most appropriate and tax-efficient for your business, considering income/profit thresholds and future ambitions.
• Overseas tax considerations: Weigh up suitable geographical locations that may offer certain tax incentives, depending on structural and expansion plans.

Consider using a qualified tax advisor to develop your corporate tax planning strategies or lawyers offering corporate tax planning services, who can help you maintain compliance when optimising your approach.

Avoiding penalties: How to stay compliant with corporate tax law

HMRC requires all businesses to make reasonable attempts to file their tax returns on time and make prompt payments. Although the UK Government vowed to make it “simpler and more straightforward for businesses to understand their obligations and how to meet them,” companies must still proactively check the rules that apply to them and keep on top of tax deadlines and compliance requirements. 

Key HMRC deadlines and requirements

Here are the key HMRC deadlines you need to know about and what’s required of your business:

Corporation Tax returns

When submitting Corporation Tax returns, your filing due date is 12 months after the end of your accounting period. These dates can vary, as businesses have different cycles, but many companies tie their accounting periods with HMRC’s tax year.

If you have taxable profits of up to £1.5 million, your company’s Corporation Tax payment is due 9 months and 1 day after the end of your accounting period. Larger companies with taxable profits of between £1.5 million and £20 million must pay Corporation Tax quarterly. Businesses above those thresholds are categorised as “very large companies” and are subject to stricter payment schedules.

Self Assessment returns

Those self-employed as a sole trader or in a business partnership don’t pay Corporation Tax. Instead, you must submit a Self Assessment return, which is due on 31st October, for paper returns, and 31st January, for digital submissions.

Payments are broken down into two annual payments. By 31st January, you must pay the tax balance due plus your first payment on account for the next year. Then a second payment on the account is due by 31st July.

VAT returns

Your VAT returns should be submitted to HMRC every three months. The deadline for submitting your return online is typically a calendar month and 7 days after the end of each three-month cycle. The Making Tax Digital for VAT regime was implemented to simplify VAT returns. Payments are due by your VAT return due dates.  

If you’re using the VAT Annual Accounting Scheme, you can make advance payments towards your VAT bill or arrange to pay it once a year.

PAYE and NI obligations

If submitting PAYE to HMRC electronically, you must pay your PAYE bill by the 22nd of the next tax month if paying monthly or the 22nd after the end of the quarter if paying quarterly. Any businesses still paying by cheque must do so by the 19th of the next month. Under the Real Time Information (RTI) system, information about employee tax, NI and other deductions during payroll is transmitted to HMRC digitally.

For self-employed sole traders and partnerships, NI contributions are calculated by HMRC based on Self Assessment returns.

What happens if I don’t comply with corporate tax regulations?

If you don’t comply with corporate tax regulations, including meeting filing/payment deadlines, submitting the right information and using eligible allowances, you can be subject to penalties and legal proceedings. It’s important to know what penalties HMRC can issue, the knock-on effects that can hurt your business and how to avoid the common pitfalls.

HMRC tax penalties

Here are some of the types of tax penalties HMRC can hand out to your business:

• Late filing penalties – charges for submitting tax returns after your obligated deadline 
• Late payment penalties or underpayment – failure to make the required tax payments owed by the deadline showing on your account 
• Penalties for inaccurate tax returns and underpayment – miscalculations and reporting errors identified by HMRC
• Non-compliance penalties, including failure to notify HMRC about certain changes to your accounting period or business status, or not registering for VAT when required

Learn more about HMRC tax penalties in our dedicated guide, including how much you can be charged and how to manage and avoid them.

Commons mistakes that lead to penalties from HMRC

When navigating corporate tax law and planning to meet your obligations to avoid penalties, try to avoid these common mistakes:

• Falling to file tax returns on time (Corporation Tax, VAT, Self Assessment, etc.)
• Missing tax payment deadlines
• Not registering for VAT when required (according to income thresholds)
• Making errors in reporting and corporate tax calculations (HMRC will assess whether any errors are intentional or unintentional) 
• Not declaring certain income claiming for ineligible tax deductions
• Other compliance missteps, such as not keeping adequate records of expenses, PAYE reporting issues via RTI or any misinformation

Potential reputational damage and legal proceedings

• Negative impact on credit ratings – missing deadlines and making late payments can lead to your credit score going down, reducing your chances of finance approval or trade credit in the future
• Investigations into tax evasion or potential insolvency – HMRC can dive deeper into your finances if it thinks your business is in money trouble or deliberately avoiding paying its taxes
• Reputational and legal issues – repeat offences, recurring missed deadlines and other compliance issues can see your company’s reputation take a hit and lead to legal ramifications that are detrimental to business growth and survival

Choosing the right business structure for tax efficiency

Are you operating with the most suitable business structure? Choosing the structure depends on your business type, size and goals but can improve your tax efficiency.

What is the impact of business structure on tax liability?

How your business is structured influences how and when you make certain tax payments and the relief available, so it’s a factor in corporate tax planning.

Here are the main types of legal business entity structures and the key tax obligation and efficiency differences:

• Sole trader: Operating as a sole trader is a streamlined approach with fewer compliance requirements. However, you’re subject to higher taxes on income, paying Income Tax and Class 2 & 4 NI through Self-Assessment, as opposed to Corporation Tax. You must register for VAT if your VAT-taxable turnover is over £90,000.  
• Private Limited company (Ltd): If you’re registered as an Ltd, you pay Corporation Tax rather than Income Tax, meaning low rates on income/profits and greater opportunities for capital allowances, relief like R&D credits and dividend planning.
• Public Limited Company (PLC): Like an Ltd, a PLC pays Corporation Tax at the same rate and can enjoy similar tax reliefs and allowances but has stricter reporting and compliance requirements. However, there are various financial growth opportunities for businesses going public.
• Community Interest Company (CIC): Because CICs focus on social objectives and impact the community, they have greater access to social enterprise incentives, grants and unique tax reliefs. However, there are restrictions on profit distribution in corporate year-end tax planning.
• Partnership: In a business partnership, the partners are jointly liable for business obligations and debts. Partners pay Income Tax and NI on their profit share. As profits are split, it reduces individual tax liabilities.  
• Limited Liability Partnership (LLP): An LLP has a clear divide in legal identity. Partners are only liable for their agreed contribution to the business. While partners pay Income Tax and NI, the LLP offers limited liability protection.

Sole trader vs. limited company: advantages and disadvantages

New businesses often have an initial decision over whether to register as sole traders or limited companies. So, here’s a brief sole trader vs. limited company comparison of the pros and cons of these business entities:

Operating as a sole trader

A sole trader is the simplest business structure, requiring minimal set-up costs and administration, and suits freelancers, consultants and small service providers. From a legal standpoint, the individual and business are interchangeable, meaning you’re fully liable for any debts but keep all the profits after tax.

While you enjoy greater control, income is taxed at a higher rate than Corporation Tax and there are fewer opportunities to optimise tax liabilities.

Operating as a limited company

Depending on your business circumstances, registering as a limited company may be necessary. Doing so offers better tax rates on profits and greater tax efficiencies. Your company will pay Corporation Tax, while directors and shareholders are taxed on their salaries and dividends.

Limited companies must navigate complex compliance requirements and register with various government systems but it opens up an array of corporate tax planning strategies.

Decide on which business structure makes the most sense

Each entity structure offers different tax liabilities and obligations. So, weigh up which is most tax-efficient in the context of how you operate and what your future growth strategies and ownership plans look like. Consider getting advice from a legal or tax expert to optimise your business structure.

Can I use a business loan to pay my Corporation Tax?

Yes. You can use a business loan to cover your Corporation Tax bill and spread costs over monthly repayments. This eases cash flow pressures in key financial periods and frees up vital working capital. 

While you’ll pay interest on the loans throughout the agreed term, using it to get your tax bill paid to ensure you avoid HMRC fines for late payments (which also incur interest) that can escalate if deadlines are continually missed.

Some lenders offer specific tax loans, tailored to Corporation Tax payments. These short-term loans are designed to help companies pay their tax bills. Instead of one big sum taking a chunk out of your cash reserves, you can spread the amount over smaller, manageable instalments – typically between 6-12 months.

Look for short-term business loans with options to make early repayments free of charge, like iwoca’s Flexi-Loans. Also, if you have assets you can use as collateral, consider a secured business loan to lower interest rates and reduce borrowing costs.

Can I deduct business loan interest from my taxable income?

Yes, while business loans themselves aren’t tax-deductible, interest fees are deemed an allowable expense. So, the interest on repayments can be deducted from taxable income when calculating Corporation Tax. Plus, arrangement fees and other loan-related costs are tax-deductible, reducing your overall liability. 

There are some restrictions, depending on your circumstances. So, provide adequate documentation about any loans or finance support for tax payments. For example, the loan must be wholly used for business purposes, otherwise, you won't enjoy the full extent of relief on the interest payments.

Learn about iwoca’s flexible business loans for small businesses 

iwoca is a leading flexible loan provider for UK SMEs, offering short-term funding solutions to ease financial pressure and fuel business growth. You can use our Flexi-Loan solutions to support corporate tax planning and pay your tax bills. 

Access timely capital when you need it most. You can borrow from £1,000 to £1,000,000 across a pre-agreed period, making manageable monthly repayments, aligned with your cash flow. Interest on payments is tax-deductible, and you only pay interest on the money you draw down and use.  

Apply online in minutes and receive a swift approval decision (typically within 24 hours). Funds will be transferred within hours of approval.

Sources:

• Tax Concerns and Political Uncertainty Persist Despite Bold Growth Plans [iwoca 2025 SME Outlook]
• Corporate Tax Roadmap 2024 [Gov.uk]
• Corporation Tax Rates and Reliefs [Gov.uk]
• Pay Your Corporation Tax bill [Gov.uk]
• How to Pay a Debt to HMRC with a Time to Pay Arrangement [Gov.uk]
• Claim Capital Allowances [Gov.uk]
• Tax Loans: How to Finance Your Corporate Tax Bill [iwoca: Finance Explained]