Running a profitable business is the best problem to have, until you realise a big chunk of those profits will be swept away in tax. The good news is that smart reinvestment is win-win: you build value in the business and legitimately reduce the tax you pay now.

Below we walk through the most useful and realistic routes to reinvest business profits

Capital allowances & “first-year” reliefs…

One of the most direct ways to reinvest profits and cut your taxable profit is to buy qualifying plant and machinery and claim capital allowances.

What’s changed recently? From 1 January 2026 the government introduced a new first-year allowance for some qualifying plant and machinery, intended to encourage investment and allow companies to obtain bigger tax reliefs in the year of purchase.

This sits alongside the existing Annual Investment Allowance (AIA) and other capital allowance rules, so it’s worth checking which allowance gives the best tax relief for your purchase.

How it saves tax

If your company spends on qualifying assets (machinery, some plant, fixtures, specialist equipment), you can usually deduct that cost from taxable profits immediately (up to the AIA limit) or via first-year allowances - reducing the profit that corporation tax is charged on.

Practical steps

1. Make a short list of equipment you need in the next 12 months and cost it out.

2. Speak to your accountant to check if items qualify (cars usually don’t; most plant and machinery do).

3. Time the purchase. If you buy before the end of a qualifying period you may claim the allowance earlier and reduce this year’s tax.

4. Keep supplier invoices and installation evidence: HMRC expects good records.

Trap to avoid: Buying things you don’t actually need just for tax relief rarely pays. Focus on assets that genuinely support profitability or capacity

Employer pension contributions: invest in people and reduce profits

Paying employer pension contributions is a classic, tax-efficient way to deploy profits. Employer contributions are generally deductible for Corporation Tax provided they’re “wholly and exclusively” for the purposes of the trade. They also boost employee retention and can be structured to benefit directors.

How it saves tax

Employer pension contributions reduce company profits and therefore reduce Corporation Tax liability. For directors, employer contributions also avoid immediate Income Tax and (usually) National Insurance in the way a salary might attract.

Practical steps

1. Calculate a sustainable employer contribution level (company affordability + personal pension caps).

2. Consider using pension contributions to balance director remuneration (salary vs benefits) with your accountant’s guidance.

3. Ensure contributions are paid to a registered pension scheme and supported by payroll records.

Trap to avoid: Don’t exceed annual or lifetime allowances without checking the tax impact for the individual (or falling foul of proposed future policy changes). Always document commercial rationale.

Invest in people: training, apprenticeships and productivity enhancers

Spending profits on staff training, apprenticeships or productivity tools is often allowable as deductible revenue expenditure and it directly builds the business’s capability.

How it saves tax

If the expenditure is revenue in nature (training course fees, salaries for staff while training, training materials), it’s generally deductible against trading profits, lowering taxable profits. Some training costs also attract government grants or apprenticeship levy credits.

Practical steps

• Map the skills gap that will unlock growth and cost out a training plan.

• Use apprenticeships or accredited training where possible (they often come with co-funding).

• Keep clear records of the courses, attendees, and business relevance.

Share schemes and employee incentives (EMI, SAYE) - retain staff, defer tax

A properly designed share-option scheme can help you reinvest profits into growth (by keeping and rewarding the team) while offering tax advantages.

Why EMI is useful now

The government has recently expanded and adjusted eligibility for EMI schemes, making them more accessible to a wider set of growing companies - and these options remain one of the most tax-efficient ways to reward employees because gains on exercise can be taxed as Capital Gains rather than Income, often with more favourable rates.

How it saves tax

Putting value into equity rather than cash wages reduces immediate payroll costs for the employer and may reduce Income Tax/NICs on employees. On exit, gains may be subject to more favourable Capital Gains Tax treatment (including potential Business Asset Disposal Relief if conditions are met).

Practical steps

• Discuss EMI with a specialist adviser to check company eligibility (there are limits and qualifying criteria).

• Use EMI to recruit and retain key hires rather than funding high salaries that push up your paybill.

• Document grant terms and valuations carefully.

Trap to avoid: Share schemes have strict rules. If incorrectly implemented they can become taxable as employment income.

Leave profits in company for planned future investment

Sometimes the simplest option is to leave profits in the company to fund growth or to time shareholder distributions to a tax-efficient moment. Corporation Tax is payable on profits, but timing dividends, reinvesting for expansion, or drawing as salary/pension all influence total tax take across company and owner.

Practical steps

• Work with your accountant to map the optimal mix of retained earnings vs distributions.

• If you’re planning capital investment or an acquisition, keeping profits in the company reduces the need for external finance.

• Use retained profits as match funding for grant applications or to secure better financing terms.

Don’t leave large sums idle without a plan! cash attracts both tax debates and temptation to spend inefficiently.

Use tax-efficient external investment routes when appropriate (EIS / SEIS / VCT)

If your company is investing spare profits into other UK start-ups or if you’re thinking more broadly about corporate investments, consider government-backed schemes that give tax relief to investors (EIS/SEIS) and VCTs. These are most relevant when your company acts as an investor rather than reinvesting in its own operations.

How it saves tax

Investments under SEIS, EIS and VCTs can generate income tax reliefs, deferral reliefs or exemption on capital gains. This route is more niche for trading companies but can be part of a strategic treasury or group investment policy.

Practical steps

• Take specialist tax advice: EIS/SEIS need strict qualifying conditions and are not for casual investing.

• Document investment rationale and ensure governance is sound.

Acquisition, M&A & buying growth (using profits to buy capability)

If growth via acquisition makes strategic sense, using retained profits to buy a complementary business, technology or client list can be tax-efficient compared with paying large salaries or capex that doesn’t deliver scale.

Tax points: How you structure the purchase (asset vs share) affects immediate tax treatment and the ability to claim capital allowances, so planning with a solicitor and accountant is essential.

Practical steps

• Identify strategic targets that provide revenue synergies or efficiency gains.

• Model the full tax, cash and integration impact before committing.

• Use earn-outs and deferred consideration to manage cashflow and align incentives.

Trap to avoid: Overpaying for deals without clear integration plans; poor due diligence is the common killer.

Timing, record keeping and working with your accountant - the final mile

All of the routes above require careful record keeping and planning. The difference between a legitimate tax saving and an HMRC dispute is evidence, rationale and timing.

Checklist for every reinvestment decision

• Does this spending have a clear commercial purpose? (Document it.)

• Is it capital or revenue expenditure (affects how you claim relief)?

• What is the timing impact on Corporation Tax and cashflow?

• Are there industry-specific reliefs (energy, R&D, green tech) you should use?

• Have you modelled the net economic benefit after tax?

Final thoughts: reinvest sensibly, not reactively

“Reinvest business profits” isn’t a one-size-fits-all instruction. The best use of profit is the one that grows the business and matches your strategic timeline — while being tax-aware.

Short checklist to act now:

• Book a 60–90 minute planning call with your accountant and bring this checklist.

• Prepare a short 12-month reinvestment wishlist (capex, people, R&D, M&A).

• Prioritise items you can legally expense or get allowances for in the current tax period.

Don’t forget governance: document purpose, expected outcomes, and who’s accountable.

And remember, you can only plan ahead of your year end. If you wait until after your year end, you’ve lost the window of opportunity for reducing costs in that tax year. So be proactive, book a call with your accountant, in plenty of time before the year end, or even better, book a free call with us and we can start to talk it through. Click here to book your slot.