Year-end tax planning is one of the most valuable things a UK small business can do before its accounting reference date. For limited companies, the period leading up to the year end is the last chance to make decisions that legitimately reduce corporation tax. For sole traders and partnerships, timing matters for self-assessment and the way profits are split across tax years. Acting early gives you room to make considered choices rather than rushing in March or December.
Reviewing Salary and Dividends Before the Year End
For limited company directors, the mix of salary and dividends is a key tax-planning lever. A common approach is to pay a salary up to the National Insurance secondary threshold, keeping it within the personal allowance, and then extract further profits as dividends up to the dividend allowance. Reviewing this before the year end ensures the overall extraction stays efficient and within current HMRC limits.
- Confirm director salary is set to the optimal level for the current tax year.
- Plan dividend declarations so they stay within available company reserves.
- Check that any director's loan account is cleared within the permitted timeframe to avoid Section 455 tax.
Pension Contributions and Capital Allowances
Employer pension contributions made before the year end are an effective way to reduce taxable profits while building the directors' retirement savings. Similarly, capital allowances on qualifying equipment purchases can lower the tax bill, but timing of the purchase and the date it becomes available for use both matter. Reviewing fixed-asset additions before year end avoids missed reliefs.
Where a small business has invested in plant and machinery, checking the Annual Investment Allowance position is worthwhile, as is confirming whether full expensing applies to larger purchases. These reliefs can be generous, but they depend on records being accurate and submitted in the right period.
Allowable Expenses and Bad Debt Review
A year-end review of allowable expenses often uncovers items that have been missed during the year. Genuine business costs, such as use of home as office, motor expenses, professional subscriptions and training, should be recorded correctly. At the same time, reviewing the sales ledger for bad debts allows irrecoverable amounts to be written off, which reduces taxable profits.
Stock should be counted and valued at the lower of cost and net realisable value, and work in progress should be reviewed. These small adjustments, made before the year end rather than weeks afterwards, keep accounts accurate and tax calculations fair.
Plan Ahead, Don't Leave It to the Deadline
Tax planning done under pressure is rarely as effective. Booking a review with a dedicated accountant a few months before the year end gives time to act on the recommendations, whether that means accelerating purchases, deferring income, or adjusting drawings. It also keeps the business fully compliant and ready for Making Tax Digital reporting.
Year-end tax planning is about keeping more of what your business earns, legally and predictably. If you would like a review tailored to your figures, book a discovery call with our team.