As your company year-end approaches there are some considerations you should make and it is important to think about what you are aiming to achieve.
Whether you are looking to improve cash flow, reduce your corporation tax liability or gain clarity and understanding on business performance, taking action ahead of your company year end can help with strategic decision making.
Lower profits may mean a lower Corporation Tax bill but that isn’t necessarily the best result for the business.
There are some reasons you may want to show a higher profit and pay more tax:
Your mortgage - The performance of your company and dividends drawn from it will affect your mortgage options.
Funding - Lenders will consider the profits of the business when looking at repayment/affordability.
Sale - If you are considering selling your business, you will want to ensure the profit and loss and balance sheet look as strong as possible for valuation purposes. Planning needs to be carried out well in advance of any sale and further considerations made regarding Business Asset Disposal Relief.
If you are looking to mitigate your Corporation Tax liability, you could consider:
Capital expenditure
Assets must be delivered and in use to claim tax allowances. On most plant and machinery, fixtures and fittings, 100% relief is given up to an annual limit of £1 million. This is known as the Annual Investment Allowance.
Full expensing gives 100% first year relief to companies on qualifying new and unused main rate plant and machinery expenditure.
In the 2025 Budget, a new 40% First Year Allowance was introduced, which can be claimed on expenditure incurred on or after 1 January 2026. This can be claimed on assets that do not qualify for full expensing and where the Annual Investment Allowance has already been used. This will be useful for companies which have a large expenditure on plant and machinery. The measure is designed to incentivise and support future business investment in plant and machinery as the annual writing down allowance reduces from 18% to 14%.
Remember that disposals made before or after the end of your accounting period may affect the taxable profit.
Pension contributions
Employer pension contributions can form part of a remuneration package. A lump sum contribution could be made for one of the directors. This is treated as a business expense and therefore gets tax relief by reducing profits.
You may also consider delaying pension contributions, however, you should speak to your financial adviser on this to ensure pension contribution allowances are not being lost.
Other company tax reliefs
During the process of considering year-end planning, this is also a good opportunity to look at whether there is expenditure that may qualify for Research & Development relief.
Directors’ remuneration – are you processing an annual salary to utilise tax-free personal allowances and gain a qualifying year for state pension purposes.
Trivial benefits £300 annual cap applies to directors of close companies. The benefit must cost £50 or less per item. Examples include seasonal gifts such as a bottle of wine or Christmas hamper, celebrations of a small gift or meal out, small event such as cinema tickets, and non-cash gift voucher, like a store card.
Dividend planning
Dividends are payable from retained profits and can only be paid where there are sufficient profits from which to pay the dividend.
Paid from post-tax profits so there is no Corporation Tax relief.
Utilise £500 dividend allowance and lower tax bands.
Balance salary/dividend mix to ensure your basic rate tax band is being used and you are comfortable with income into the higher rate bracket and the associated income tax liability.
From 6 April 2026, the dividend tax rates are increasing by 2%. The basic rate tax becomes 10.75%, higher rate 35.75% and additional rate 39.35%.
Be mindful of expenditure that will not affect your profits, such as:
Spending on matters that don’t happen until after the year-end such as paying a deposit for an event in the following year, buying an annual subscription/insurance as the amount is pro-rated to the period it relates.
If you would like advice and support when it comes to your year-end planning, please get in touch.
