Corporate Tax Planning Best Practices for UK Businesses

Having a solid corporate tax plan is essential for small businesses. It helps them navigate complex tax regulations, reduce their tax liabilities, forecast their tax obligations, ensure timely and accurate filings, and streamline cash flow management.

In this article, we explore some of the best practices for corporate tax planning, with a particular focus on businesses in the UK. We also highlight Wise Business, an international account enabling you to send and receive business payments abroad in multiple currencies. Wise Business offers cost-effective currency conversions using the mid-market exchange rate.

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What is Corporate Tax Planning?

Corporate tax planning is simply the process of structuring a company's financial affairs to minimise its tax liability while ensuring compliance with tax laws and regulations.

For businesses in the UK, having a solid corporate tax plan helps them manage their company’s tax liability while ensuring that they meet the HMRC obligations. This process involves employing strategies such as deferring income, maximising deductions, and picking a favourable tax jurisdiction to reduce a company’s tax bill while increasing profits.

For example, let’s say a construction company based in Nottingham wants to minimise its tax liability for the next tax year. This year, the company has an annual income of £50,000. By deducting £10,000 in allowable expenses such as labour, supplies, transport, and utilities, the construction company’s taxable income is reduced to £40,000, significantly lowering its tax bill and helping it save money.

How does corporate tax planning work?

Here’s a quick walkthrough of how corporate tax planning works:

Reevaluate your business structure

First of all, you need to evaluate whether your current business structure is tax-efficient or not. For example, operating as a limited liability company helps you minimise your tax liability compared to when you’re operating as a sole trader. This is because income tax can be up to 40% if you earn £50,271 to £125,140¹. On the other hand, corporate taxes in the UK are usually within the range of 19% to 25% depending on how much your profit is².

Understand your tax obligations

Ensure you have a clear understanding of your tax obligations. Knowing your tax obligations helps you be compliant with the UK local corporate tax laws and avoid penalties and sanctions from non-compliance.

More importantly, understanding your tax obligations enables you to know how much tax you owe, when you need to file your tax, and if there are any tax reliefs you can claim to reduce your tax liabilities.

Businesses with profits above £250,000 are obligated to pay a corporate tax of 25% on profits. Companies with profits at or below £50,000 are obligated to pay a Small Profit Rate of 19%².

Leverage tax reliefs and incentives

Businesses in the UK can also explore different tax relief schemes to reduce their tax liabilities. For instance, companies in the innovation sector can leverage the R&D tax credits⁵. Likewise, you can also check if you are eligible for the creative industry tax relief⁷.

Why is corporate tax planning important for businesses?

Here are some of the major reasons why having a corporate tax plan is essential:

• Minimise tax liabilities: Corporate tax planning helps businesses leverage tax laws to reduce tax burdens. With efficient tax planning, companies can save more money by maximising tax reliefs, strategic deductions, and exemptions.
• Steady cash flow: Tax planning maximises profits and reduces the percentage of profit owed in taxes. This helps you minimise cash flow crunch and leaves more money for you to invest in your business growth.
• Mitigate non-compliance risks: Another significant benefit of having a corporate tax plan is that it helps companies minimise the risks of non-compliance. Organisations can keep track of upcoming deadlines and make sure all tax returns are submitted on time. Additionally, a corporate tax plan helps you stay up-to-date with tax records, which is mandated by HM Revenue and Customs (HMRC)³.
• Long-term financial stability: Having a good tax plan also helps you accurately forecast and budget. This means you can manage your finances better and make better financial decisions, which improves your company’s financial health.

Corporate tax planning strategies

For companies seeking to minimise their tax liabilities, effective corporate tax planning strategies are crucial.
This section highlights some of the most effective corporate tax strategies that small businesses can consider:

• Consider the most tax-efficient business structure: Restructuring your organization could reduce tax obligations. For instance, Limited companies with an annual income over £250,000 have a fixed corporate tax rate of 25% for profits and 19% on profits up to £50,000². Limited companies are also eligible for personal assets protection. On the other hand, registering as a sole trader and earning from £50,271 to £125,140 means you’re obligated to pay a higher tax rate of 40%¹.
• Claim allowable expenses: Allowable expenses are business-related costs that can be claimed as tax deductions. This could be salaries, travel costs, utilities, and rent. Claiming these allowable expenses can significantly reduce your total taxable income, which in turn reduces your tax bills.
• Maximize tax relief schemes: In addition to claiming allowable expenses, you can also claim various tax relief schemes available in the UK. Some of the major ones include Annual Investment Allowance (AIA)⁴, Research and Development (R&D) Relief⁵, Patent Box Relief⁶, Creative Industry Relief⁷, and Marginal Relief for Corporation Tax⁸.
• Leverage VAT schemes for efficiency: VAT schemes allow small businesses to enjoy potential savings and administrative benefits. By keeping accurate financial records, organizations in the UK can reclaim VAT on eligible purchases, avoid compliance issues, and use specific VAT schemes to reduce or delay VAT liabilities.

Useful tools for planning corporate tax

Here are some of the best corporate tax planning tools for you to consider for corporate tax planning:

• Xero: Xero is a corporate tax tool that provides profit and loss reports for viewing your company’s income, expenses, and profits⁹. Not only that, this software allows you to customise the report by year, month, and date comparison. Xero offers some of the following features¹⁰:

  • End-to-end solution for tracking your business finance in one place
  • Built for streamlining the compliance process
  • Integrates with a wide range of invoicing, payment, and CRM software, including Wise Business accounts.

• Sage: Sage is a tax software designed specifically for small businesses¹¹. This software program is equipped with a simplified dashboard that gives you full visibility of your cash flow. It also helps businesses make informed decisions with business reporting insights.

• QuickBooks: QuickBooks’s dashboard provides a real-time overview of your tax-related expenses¹². It allows you to customise invoices and run reports from one place.

Benefits of setting up a corporate tax plan

Having a well-structured corporate tax plan can help you:

• Makes HMRC audit smoother: Having a corporate tax plan ensures that companies maintain up-to-date records of their financial information. With this record, companies in the UK can minimise the risk of non-compliance with HMRC guidelines while ensuring that the audit process is smooth and less stressful.
• Facilitate collaboration among finance teams: A good corporate tax plan provides a clear communication path between your finance teams. This way, CFO, directors, and other external stakeholders can work together.
• Identify indirect taxes: Indirect taxes (or hidden taxes) are taxes that businesses are obligated to pay but are not as obvious as direct taxes. Although these taxes may be overlooked or not accounted for, they can significantly impact your bottom line. Having a corporate tax plan helps you account for these taxes and plan for them accordingly.
• Stay organised: Having a corporate tax plan helps businesses stay organised and ready for the tax season. This means less stress during tax season or scrambling to meet the deadline.
• Correct tax errors on time: Planning on time before tax season helps you correct any mistakes that might occur when it comes to corporate tax before the tax season.

How to write a corporate tax plan

Are you looking to write a corporate tax plan for your organisation? This section outlines a step-by-step guide on how to write one:

Have a business overview

Create a complete overview of your company’s structure, industry, size, income streams, annual turnover, and your tax liability. Knowing this information helps you determine your tax position and which tax rules are applicable to your business.

Have clear tax objectives

Clearly define what you plan to achieve by having a corporate tax plan. Is it to minimise tax liabilities or improve cash flow, or even stay more organised and file taxes without a last-minute rush?

Identify all available tax reliefs and allowances

Identify all the tax reliefs and allowances your business can claim. Additionally, ensure that you list the criteria for each relief and allowance. Doing this ensures that you don't miss out on any tax relief opportunities to reduce your tax bill.

Create a tax calendar

Create a detailed tax calendar for all your tax deadlines. With this calendar, you can easily track and manage all your tax events and ensure that you are not missing any deadlines.

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• Hold and exchange 40+ currencies;
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• No monthly fees or minimum balance requirements;
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• Pay up to 1,000 people at once with the Wise batch payments feature;
• Integrate with your favourite cloud accounting solutions, like Quickbooks.

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FAQ - Corporate tax planning

Below are some of the frequently asked questions on corporate tax planning:

What are the key objectives of corporate tax planning?

The main objective of having a corporate tax plan is to minimize a company’s tax liability while ensuring that the business stays compliant with corporate tax laws. This process involves using strategies like claiming tax relief, deductions and allowances to legally save on a company tax return and increase their after-tax profits.

Additionally, a corporate tax plan helps companies streamline their cash flow, minimise non-compliance risks, and ensure financial transparency.

How does corporate tax planning differ from tax compliance?

Tax compliance involves companies fulfilling their tax obligations. This includes filing tax returns on time and keeping accurate records to be compliant with HMRC regulations. Doing this helps organisations avoid fines and penalties that non-compliance might attract.

How do changes in tax laws impact corporate tax planning?

Changes in tax laws have a significant impact on your company’s tax plan. For example, a slight adjustment to the corporate tax rate by the HMRC will mean your company will have to update your tax strategy accordingly to reflect this new update.

Therefore, it’s advisable for businesses to be updated with changes by local tax bodies like the HMRC.

How often should a business review its corporate tax plan?

Ideally, an organisation should review its corporate tax plan at least once a year. This should be before the end of its accounting or tax year. However, as your business grows, it’s advisable to revisit your corporate tax plan strategies more regularly.

What are the potential risks of poor corporate tax planning?

Poor corporate tax planning can put your organisation at various financial and legal risks. It can lead to reduced cash flow and profits because your business fails to claim deductions and allowances that they are entitled to.

Additionally, this may result in your company facing fines and penalties due to non-compliance with HMRC’s regulations.

Sources used in this article:

1. Income Tax rates and Personal Allowances - Current rates and allowances - GOV.UK
2. Corporation Tax rates and allowances - GOV.UK
3. Keeping your pay and tax records: Overview - GOV.UK
4. Claim capital allowances: Annual investment allowance - GOV.UK
5. R&D tax relief - GOV.UK
6. Use the Patent Box to reduce your Corporation Tax on profits - GOV.UK
7. Creative industry tax reliefs for Corporation Tax - GOV.UK
8. Marginal Relief - GOV.UK
9. Profit and Loss report – Xero Central
10. Online Accounting Software - Xero
11. Tax Software and Tax Returns for Small Business | Sage UK
12. Sage Business Cloud Accounting Reporting Software
13. GST and VAT Tracking Software | Intuit QuickBooks

Sources last checked 19/08/2025