If you are thinking about how you can reduce your company’s tax bill, usually action will need to be taken before the year end. After the year end is too late.
Aside from thinking about tax, there are some areas you should be considering.
See below for actions you can take to save tax and get yourself in good shape for your year end.
| Pension contributions: | You can make an employer contribution of up to £60K. Potential tax benefit : £11K – £15K depending on effective corporation tax rate. Tips : the payment must be made before your year end to be allowable. Traps : watch out for any personal contributions you have made. This will reduce the amount you can pay via the company. If you are a high earner (income over £200K) talk to us as your pension allowance may be lower than £60K due to tapering. |
| Stock take: | If you sell products you should complete a year end stock take. Potential tax benefit : this one is to ensure that you pay the right amount of tax. If your stock number in your accounts is higher than it should be, you’ll be paying more tax than you should and if it’s lower, you’ll be underpaying your tax. Tips : arrange to count your stock on your year end date. If this isn’t possible count it as close as possible, but it will then need to be adjusted for movements. If you identify old and slow moving stock, you might want to take a provision against it, which will help reduce your tax bill. Traps : the value of your stock is not its selling price. It is the cost of you buying it or making it. |
| Asset purchases: | If you are planning a capital purchase like an electric car, or van bring it forward so that you can claim capital allowances in the current year. Potential tax benefit : 19% to 25% of cost depending on effective corporation tax rate. Tips : don’t spend £1 to save £0.25. If you don’t need that new van, buying one to save tax doesn’t make commercial sense. Traps : not all asset purchases are treated the same way, so check with us to make sure you will get a full deduction. |
| Bring forward expenses: | If you are planning to incur some larger expenses, e.g. repairs, marketing projects, recruitment, bringing them into the current tax year, will allow you to benefit from the corporation tax deduction a year earlier. Tips : If you have planned activities which might happen just after the year end, why not bring them forward. It will give you a deduction against corporation tax a year earlier. Traps : The activity needs to have happened. For instance, if you have paid a deposit on a marketing project which is happening in the next year, the expense will be recognised when it happens, not when you have made the deposit. |
| Dividends (Part 1): | Make sure you have used up your tax free dividend allowance of £500 (2024/25 and 2025/26) Tips : If you aren’t paying regular dividends from your company, make sure you have used up your dividend allowance. Traps : If you have other dividend income, this also counts towards the £500 limit. |
| Dividends (Part 2): | Check that you haven’t overpaid dividends. Tips : You need to have either generated sufficient profits in the year or have profits (retained earnings) brought forward from prior years in order to pay dividends. Traps : If you don’t have sufficient reserves and have overpaid dividends, they may need to be re-classified as they are not legal. This might mean you have more tax to pay than expected. |
| Director’s loan account: | Have you reviewed your director’s loan account to make sure it is not overdrawn. If it is, have you planned how to repay it. Tips : if your loan account is overdrawn, plan how to repay it within 9 months of your year end. If you are a director and not a shareholder, there won’t be a S455 impact, but there could be benefit in kind charges. Read our blog ”Avoiding Tax Surprises: Why understanding your director’s loan account is crucial if you are a business owner” for more information. Traps : an overdrawn loan account can lead to unexpected (S455) tax later in the year. It may also generate a P11d benefit, which also has tax consequences for you personally. |
| Review your trade debtors: | Do you have old debtors which are unlikely to be paid? They may be due to disputes, or perhaps the customer is unable to pay or has gone into liquidation. Tips : if there is reasonable doubt that you will be paid, a provision against the doubtful debt can be made. This is treated as an expense and is allowable as a tax deduction. Traps : a general provision is not tax deductible. For instance, if you provide for a percentage of your trade debtors not being paid, that is not allowable. The provision needs to be specific i.e. against specific debtors. |
