If you’re running a limited company, managing costs is a big priority. Taxes, in particular, can feel like a major burden, but there are perfectly legal ways to reduce how much you owe. As an accountant working with start-ups across the UK, I’ve helped many business owners optimise their taxes while staying fully compliant with HMRC rules.
Here are five straightforward ways to ensure your business isn’t paying more tax than necessary.
1. Use a Salary and Dividend Split
One of the easiest ways to save on tax is by paying yourself through a mix of salary and dividends. As a director, you can choose how to structure your income:
– Salary: By paying yourself a salary up to the National Insurance threshold (currently £12,570 for 2023/24), you avoid National Insurance and income tax.
– Dividends: Dividends, which are taxed at a lower rate than salary, can make up the rest of your income. This means you keep more of what you earn, while your business saves on its tax bill too.
This approach is simple, effective, and perfectly legal.
2. Claim All Your Business Expenses
Don’t leave money on the table—claim every legitimate business expense. These reduce your company’s profits and, in turn, the amount of tax you owe. Common allowable expenses include:
– Office supplies and equipment
– Business travel and mileage
– Professional services (accountants, legal advice)
– Marketing and advertising costs
– Software subscriptions
If you work from home, you can also claim a proportion of household bills, such as electricity and broadband, based on the time and space you use for work. Every small claim adds up, reducing your tax liability.
3. Use the Annual Investment Allowance (AIA)
If your business needs to buy equipment like machinery, computers, or office furniture, the Annual Investment Allowance (AIA) is a great way to reduce your tax bill. The AIA allows you to deduct the full cost of qualifying purchases from your profits before tax, reducing the amount of corporation tax you’ll owe.
The allowance is currently set at £1 million (2023), making it particularly useful for businesses that need to invest in equipment to grow while keeping taxes down.
4. Claim Research & Development (R&D) Tax Relief
If your business is working on new products, services, or processes, you could be eligible for R&D tax relief. Many companies, especially in tech, engineering, or even creative sectors, are surprised to learn they qualify.
R&D tax relief can give you up to 33% back on eligible research and development costs. Whether you’re trialling a new product or improving internal systems, this relief could be worth a significant tax reduction or even a cash rebate.
5. Make Pension Contributions
Pension contributions are another tax-efficient way to reduce your company’s profits (and therefore your tax bill). When your business contributes to your pension, it counts as a business expense, which means you pay less corporation tax.
Plus, these contributions are free from National Insurance, so you get a double tax-saving benefit. It’s an easy way to plan for the future while reducing what you owe today.
Take Time for a Year-End Review
Before your financial year ends, it’s always worth having a year-end review with your accountant. A review lets you check your accounts and see if there’s anything you can do before the year closes to minimise your tax bill—whether it’s making pension contributions, claiming additional expenses, or investing in new equipment.
These final checks could save your business money and ensure you’re fully prepared for tax season.
Using these straightforward and legal strategies, you can reduce your limited company’s tax bill and keep more money in your business. If you’d like to explore how to make the most of these tax-saving tips, consider a year-end review to help you get the best result for your company.
If you need tailored advice on how you can save on your tax bill, whether you are a limited company or a sole trader, our team can help you. Contact us today here.