Every construction business wants to maximise profits—and reducing your Corporation Tax bill is a crucial part of that strategy. Thankfully, there are plenty of completely legal, HMRC-approved ways to minimise Corporation Tax, leaving your business with more money to reinvest, grow, or distribute.
In this blog, we’ll explain clearly and practically how construction companies can reduce Corporation Tax legally, highlighting key allowances, strategies, and tips.
🏗️ Why Corporation Tax Efficiency Matters in Construction
Corporation Tax is currently set at 19%–25% (depending on your annual profits), which significantly impacts your bottom line. Every pound saved through tax efficiency goes directly to your profit, improving cash flow and giving your business a financial advantage.
Effective tax planning means:
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Paying less tax legitimately
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Reinvesting savings into growth
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Boosting overall profitability
✅ Legal Ways Construction Companies Can Reduce Corporation Tax
1. Claim Capital Allowances and Annual Investment Allowance (AIA)
You can deduct the cost of buying certain business assets from your profits before tax. Construction businesses commonly claim for:
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Machinery and equipment (excavators, tools, plant)
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Company vehicles (vans, certain cars)
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Office and IT equipment
The Annual Investment Allowance (AIA) lets you claim 100% of qualifying costs (up to £1m currently) in the year of purchase.
Tip: Plan large purchases strategically around your accounting year-end for maximum tax benefit.
2. Use Research & Development (R&D) Tax Relief
Many construction firms don’t realise they qualify for R&D relief. It applies whenever your business attempts to overcome technical uncertainties, innovate construction methods, or improve materials and processes.
Common qualifying projects in construction include:
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New or improved construction techniques
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Innovative energy-efficient building methods
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Bespoke design solutions overcoming challenging conditions
Claims typically provide significant Corporation Tax reductions or even cash rebates.
3. Maximise Allowable Expenses
Make sure you’re claiming every allowable expense, including:
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Labour and subcontractor costs (under CIS)
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Staff salaries and benefits
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Training and staff development
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Materials and supplies
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Office rent, utilities, and business rates
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Insurance (public liability, professional indemnity)
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Travel expenses directly related to projects
Tip: Ensure you maintain clear records to back these claims clearly.
4. Optimise Your Director Remuneration Strategy
Minimise tax by carefully balancing salary and dividends:
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Pay directors a lower salary (just enough to cover NIC contributions)
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Draw additional income via dividends, which don’t attract National Insurance and are taxed at lower rates than salary
This combination significantly reduces your Corporation Tax liability and personal tax overall.
5. Claim CIS (Construction Industry Scheme) Deductions
If you’re a subcontractor under CIS, always reclaim any CIS tax deducted from your invoices promptly. These deductions directly reduce your Corporation Tax or can be reclaimed as cash refunds.
Many construction businesses unknowingly leave significant amounts unclaimed.
6. Use Loss Relief
If your business experiences a loss-making year (common in construction), you can:
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Offset current-year losses against previous year’s profits (resulting in tax refunds)
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Carry losses forward to offset future profits
Strategically applying loss relief helps manage tax efficiently over time.
7. Pension Contributions
Company pension contributions for directors and employees are fully tax-deductible. You’ll lower your Corporation Tax bill, boost your personal savings, and retain valuable staff.
🚫 Common Mistakes to Avoid
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Not claiming capital allowances or R&D relief
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Overpaying directors via salary (leading to unnecessary NICs)
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Failing to reclaim CIS deductions promptly
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Poor record-keeping, missing eligible expenses
📊 Example: Tax Savings in Practice
A construction client we helped previously overlooked R&D tax relief and wasn’t optimising their capital allowances. After review, we identified:
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Over £50,000 of eligible R&D expenditure
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Unclaimed capital allowances on plant equipment
Result: We reduced their Corporation Tax bill by over £20,000 legally and effectively.
🛠️ Tools to Help Manage Corporation Tax Efficiently
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Xero / QuickBooks: Accurately track eligible expenses and capital investments.
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R&D claim specialists: Ensure correct, maximum relief claimed.
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CIS management software: (BrightPay, SubbieHub) Manage deductions effectively.
👷♂️ When to Get Professional Advice
Corporation Tax rules can be complex, particularly for growing construction companies. Seeking expert advice helps ensure compliance and maximum efficiency, particularly for:
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Significant asset purchases or disposals
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Complex remuneration planning
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R&D tax relief claims
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Structuring company groups or subsidiaries
📞 Need Expert Help Reducing Your Corporation Tax Bill?
At Thomas Emlyn Ltd, we specialise in helping construction businesses legally and effectively reduce Corporation Tax.
We will help you:
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Identify all tax-saving opportunities clearly
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Maximise capital allowances, R&D relief, and allowable expenses
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Manage CIS deductions effectively
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Structure your remuneration strategy tax-efficiently
📞 Book a discovery call and stop paying more tax than you need to.
📌 Final Thoughts
Reducing Tax legally isn’t just smart—it’s essential for profitability in the construction sector. Follow these clear, practical steps to cut your Corporation Tax bill and boost your construction company’s bottom line.
