How should UK businesses approach Corporation Tax planning differently in the 2024/25 financial year?

Introduction: A Changed Landscape for Corporation Tax Planning

The 2024/25 financial year represents a significant moment for UK businesses when it comes to Corporation Tax planning. After several years of reforms, rate changes, and growing complexity in the tax system, companies are operating in an environment that demands a more strategic, forward-looking, and commercially aligned approach to taxation. Corporation Tax is no longer simply an annual compliance exercise; it is a core business consideration that can materially affect cash flow, investment decisions, and long-term growth.

From April 2023, the UK moved to a headline Corporation Tax rate of 25% for many companies, with marginal relief applying to those with profits between the lower and upper thresholds. By the 2024/25 financial year, businesses are no longer adjusting to a “new” rate; instead, they must focus on optimising their tax position within this settled but more nuanced regime. At the same time, the government’s emphasis on transparency, anti-avoidance, and targeted reliefs continues to reshape how tax planning should be approached.

This article explores how UK businesses should approach Corporation Tax planning differently in the 2024/25 financial year. It looks at strategic shifts in mindset, practical planning opportunities, risk management considerations, and the importance of aligning tax planning with wider commercial objectives.

Moving from Rate Shock to Strategic Planning

In the immediate aftermath of the Corporation Tax rate increase, many businesses understandably focused on the headline impact: higher tax bills and reduced post-tax profits. For 2024/25, the more effective approach is to move beyond short-term reactions and embed Corporation Tax planning into broader business strategy.

Businesses should recognise that a higher rate amplifies the value of legitimate reliefs and deductions. Every pound of allowable expense, capital allowance, or relief now carries greater tax-saving potential than it did when rates were lower. As a result, planning efforts should be proportionate to the increased financial impact of tax decisions.

This shift also requires earlier planning. Decisions made during the year—such as the timing of capital expenditure, remuneration strategies, or group restructuring—can have a significant influence on the final tax outcome. Waiting until the year-end or after accounts are prepared is increasingly likely to result in missed opportunities.

Understanding the Marginal Relief Regime

One of the defining features of the current Corporation Tax system is marginal relief, which applies to companies with profits between the lower and upper thresholds. For 2024/25, understanding how this regime operates is essential to effective tax planning.

Marginal relief creates a gradual increase in the effective tax rate rather than a cliff edge. However, it also introduces complexity, particularly for groups of companies where thresholds are divided between associated companies. Businesses should carefully model their expected profits to understand their effective rate and how close they are to key thresholds.

In some cases, managing the timing of income and expenditure can influence whether profits fall within or above the marginal relief band. While businesses must always operate within the law and accounting standards, legitimate planning around the recognition of revenue, provisions, and accruals can make a meaningful difference.

Capital Investment and Capital Allowances

Capital investment remains one of the most powerful levers for Corporation Tax planning, and this is especially true in the 2024/25 financial year. The availability of generous capital allowances means that businesses investing in qualifying plant and machinery can significantly reduce their taxable profits.

The concept of “full expensing” has changed how companies should think about capital expenditure. Rather than spreading relief over many years, businesses can often deduct the full cost of qualifying assets upfront. At a 25% tax rate, this provides an immediate and substantial cash flow benefit.

Effective planning in this area involves more than simply claiming allowances. Businesses should review their capital expenditure budgets in advance, ensure assets are correctly categorised, and consider the timing of purchases. Bringing forward qualifying expenditure into an earlier accounting period can accelerate tax relief and improve liquidity.

Additionally, companies should not overlook the importance of detailed asset reviews. In many cases, assets embedded within buildings or large projects may qualify for allowances that were not previously identified. A proactive review of historic and planned expenditure can uncover valuable reliefs.

Research and Development Relief in a Higher Tax Environment

Research and development (R&D) relief continues to be a key feature of the UK Corporation Tax system, but it has undergone significant changes in recent years. For the 2024/25 financial year, businesses must approach R&D claims with greater care, accuracy, and strategic intent.

The value of R&D relief is closely linked to the Corporation Tax rate, meaning that relief can be particularly valuable for companies paying tax at or near the main rate. However, the compliance burden has increased, with more detailed reporting requirements and a stronger focus on preventing abuse.

Businesses should ensure that R&D activity is identified and documented throughout the year rather than retrospectively. This includes maintaining clear records of projects, costs, and technical objectives. Integrating tax and finance teams with operational and technical staff can lead to more robust claims and reduce the risk of challenge.

For some companies, it may also be worth reconsidering how R&D activities are structured within a group. The location of innovation, ownership of intellectual property, and funding arrangements can all influence the availability and value of relief.

Group Structures and Associated Companies

Group structures play a central role in Corporation Tax planning, particularly under the current regime. For 2024/25, businesses with multiple companies must pay close attention to how profits, thresholds, and reliefs are allocated across the group.

The concept of associated companies affects not only marginal relief thresholds but also the availability of certain allowances and reliefs. Adding or removing a company from a group can have unintended tax consequences if not carefully planned.

Effective group tax planning involves reviewing the commercial rationale for each entity, ensuring that profits are aligned with substance, and considering whether simplification could deliver both tax and administrative benefits. In some cases, merging entities or rationalising dormant companies may reduce complexity and improve overall tax efficiency.

At the same time, any restructuring must be approached cautiously. Anti-avoidance rules are designed to prevent artificial arrangements, and businesses should ensure that changes are driven by genuine commercial objectives.

Loss Utilisation and Forecasting

The treatment of losses remains a crucial element of Corporation Tax planning. For the 2024/25 financial year, businesses should adopt a more sophisticated approach to forecasting and loss utilisation.

Carried-forward losses can be offset against future profits, but there are restrictions on the amount that can be used in any one period. With higher tax rates, the strategic use of losses becomes even more valuable.

Accurate profit forecasting is essential to maximise the benefit of losses. Businesses should regularly update projections and consider how changes in trading conditions, pricing, or costs might affect their ability to utilise losses efficiently.

Group relief can also play a role, allowing losses to be transferred between companies in a group. However, this requires careful coordination and an understanding of how group structures interact with current rules.

Transfer Pricing and International Considerations

For businesses with international operations, Corporation Tax planning in 2024/25 must take into account transfer pricing and cross-border issues. The UK continues to align with international standards, and scrutiny in this area remains high.

Transfer pricing policies should be reviewed regularly to ensure they reflect current business operations and economic reality. Changes in supply chains, pricing strategies, or functional responsibilities can all affect the appropriateness of existing arrangements.

From a planning perspective, the goal is not aggressive profit shifting but defensible, well-documented pricing that aligns with value creation. This reduces the risk of disputes while ensuring that profits are taxed in a commercially sensible manner.

Businesses should also be mindful of the interaction between UK Corporation Tax and overseas taxes, including withholding taxes and double tax relief. Coordinated planning across jurisdictions can prevent unnecessary tax leakage.

Managing Compliance and Risk

In the current environment, effective Corporation Tax planning cannot be separated from risk management. The 2024/25 financial year brings continued focus on transparency, governance, and accountability.

Businesses should ensure that their tax processes are robust, well-documented, and capable of withstanding scrutiny. This includes maintaining clear audit trails for key tax positions and decisions.

Senior management and boards are increasingly expected to have oversight of tax strategy. A clearly articulated approach to tax planning—one that balances efficiency with compliance and reputation—can support better decision-making and reduce risk.

Investing in systems and expertise can also pay dividends. Automation, improved data quality, and access to specialist advice can all enhance the quality of tax planning and compliance.

Aligning Tax Planning with Commercial Strategy

Perhaps the most important shift for 2024/25 is the need to align Corporation Tax planning with overall commercial strategy. Tax considerations should inform, but not dictate, business decisions.

Whether a business is investing in growth, managing costs, restructuring operations, or preparing for a transaction, the tax implications should be considered early. This allows for informed choices and reduces the likelihood of costly surprises.

For example, decisions around financing—such as the balance between debt and equity—have tax consequences that are magnified by higher rates. Similarly, choices about where to locate activities or how to structure incentives can influence both tax outcomes and employee behaviour.

An integrated approach, where tax is part of strategic planning rather than an afterthought, is increasingly essential.

Preparing for Future Change

While the 2024/25 financial year may feel like a period of relative stability compared to recent years, change remains a constant in the tax landscape. Political developments, fiscal pressures, and international initiatives all have the potential to reshape Corporation Tax in the future.

Businesses should therefore adopt a flexible approach to tax planning. Scenario analysis, regular reviews, and an openness to adapting strategies can help organisations respond effectively to change.

Building resilience into tax planning means avoiding overly aggressive positions, maintaining good relationships with stakeholders, and staying informed about potential reforms.

Conclusion: A More Mature Approach to Corporation Tax Planning

In the 2024/25 financial year, UK businesses should approach Corporation Tax planning with greater maturity, integration, and foresight than ever before. The era of low rates and relatively simple planning has passed, replaced by a more complex but also more opportunity-rich environment.

By moving beyond reactive measures, understanding the nuances of the current regime, and aligning tax planning with commercial objectives, businesses can manage their Corporation Tax liabilities effectively and responsibly. The key is not to view tax as a standalone issue, but as an integral part of strategic decision-making that supports long-term success.

Ultimately, the most successful approaches to Corporation Tax planning in 2024/25 will be those that combine technical understanding, proactive planning, and a clear focus on sustainable business outcomes.