Tax planning tips for UK sole traders and partnerships at the start of the tax year

At the start of a new tax year, there are some considerations sole traders and partnerships should make when it comes to tax planning over the next 12 months.

Firstly, what are you aiming to achieve? Lower profits may mean a lower income 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. For example:

Your mortgage - The performance of your business and profit share taken from it will affect your mortgage options.

Funding - Lenders will consider the profits of the business when looking at repayment/affordability.

Considerations to mitigate your income tax liability

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 a limit of £1 million under the Annual Investment Allowance (AIA).
• Remember that disposals made before or after the end of your accounting period may affect the taxable profit.

If you’re looking to purchase a new car, be aware that cars don’t always get 100% allowances:

• New cars – CO2 emissions of 0g/km – 100% first year allowances
• Second-hand electric cars – 18% of the car’s value
• CO2 emissions are 50g/km or less – 18% of the car’s value
• CO2 emissions are over 50g/km – 6% of the car’s value

Since 6 April 2025 Double Cab Pick-ups (DCPU) no longer qualify for AIA and instead will be subject to the same capital allowances as those above.

Pension contributions

If you’re a higher-rate taxpayer, you may be eligible to make pension contributions to extend your Basic Rate band. To impact the 2026/2027 tax return, payments must be made into your pension by 5 April 2027. We would recommend you speak to your financial adviser before making any contributions as there are a number of factors to be taken into consideration.

Further considerations

Expenditure that will not affect profits

• Spending on matters that don’t happen until after the year-end or on products that are in stock at the year-end won’t reduce the current year's profits.
• Land – the purchase of land does not attract any income tax deductions.