Tax Planning

Tax planning involves arranging your finances and business operations in a way that legally minimises your tax liability. It helps ensure you take full advantage of available reliefs, allowances, and structures—ultimately improving cash flow and profitability. Proactive planning can also help avoid unexpected tax bills and ensure compliance with HMRC regulations. Tip. For small businesses tax planning can be done at the beginning and the business owner can follow the blue print. If you are a one man band, setting up a payroll for yourself can help you save over £1,000 in corporation tax and will also help you gain a qualifying year for state pension.

There are several ways to reduce your tax burden, depending on your business type and income level. Common strategies include:

• Claiming all allowable business expenses
• Using the Annual Investment Allowance (AIA) for equipment purchases
• Paying yourself through a tax-efficient mix of salary and dividends (for company directors)
• Contributing to a pension scheme
• Splitting income with a spouse or civil partner where applicable
• Making use of R&D tax credits if eligible

These must be done within the rules—avoid any scheme that promises unrealistic tax savings with little substance. Tip. By making a £10,000 pension contribution, you can save at least £1,900 in corporation tax.

The right structure depends on your income level, growth plans, and risk appetite.

• Sole traders have simpler tax filing but may pay higher overall tax once profits rise above a certain level.
• Limited companies can be more tax-efficient due to lower Corporation Tax and the ability to control how and when income is drawn (e.g., dividends vs salary). However, there are more compliance obligations and costs.

We usually recommend reviewing your structure annually, especially if your profits are growing.

Tip. General rule of thumb is that once you start paying taxes at the higher rates it is likely you are better off changing the structure. A lot of our sole traders are moving to limited company structure to avoid the quarterly reporting that they will have to make due to the making tax digital changes coming in force. Of course, there are various factors that can affect this decision and we would advise you to seek professional help.

Yes, many strategies work best before the tax year ends (5 April), including:

• Accelerating or deferring income/expenditure
• Using up capital allowances
• Maximising pension and ISA contributions
• Taking dividends before a rate change
• Reviewing directors’ loans and business mileage claims

Doing this before year-end gives you control over your final tax position and avoids rushed decisions.

Tip.  Did you know on average there are two million eligible couples that can make a marriage allowance claim? But majority of taxpayers are missing out on this simple tax break that can save you £250. By March you should be aware of all the income that will affect your tax for the year. By talking to a professional accountant, you can get ideas on tax saving measure that you can implement.

Reinvestment is often good for business growth and can be tax-efficient if managed properly. For example:

• Capital expenditure can qualify for full expensing or the AIA
• Employing staff may allow access to employment allowance
• R&D spending may qualify for tax credits
• Training and development costs are usually fully deductible

However, if large sums are left in the company, plan carefully to avoid excess Corporation Tax or section 455 tax (on overdrawn director’s loans). Tip. Business owners often fall into a trap of paying themselves more than the company’s earnings which results in the hidden withholding s455 tax. We advise setting money aside from all of your earnings to avoid unexpected taxes.