Tax planning is not about avoiding your obligations — it is about structuring your affairs efficiently within the rules HMRC has set. Every one of the strategies below is entirely legal, endorsed or allowed by HMRC, and commonly used by well-advised small businesses across the UK.
The difference between a business owner who pays their fair share and one who pays more than necessary usually comes down to knowing these ten things.
1. Optimise Your Salary and Dividend Split
If you run a limited company, paying yourself entirely as salary costs you National Insurance twice — employer NI from the company and employee NI from you personally. The most tax-efficient structure combines a low salary (typically £9,100 in 2026/27) with dividends for the remainder. Dividends are taxed at 8.75% (basic rate) versus 20% income tax plus 8% employee NI on salary above the threshold. Over a year, structuring correctly typically saves £3,000 to £8,000 depending on profit levels.
2. Make Employer Pension Contributions Before the Year End
An employer pension contribution is the most tax-efficient extraction from a limited company. Every pound paid into a pension reduces Corporation Tax at 19% to 25%, avoids income tax, and avoids National Insurance. A £15,000 pension contribution saves approximately £2,850 to £3,750 in CT with zero personal tax charge. Make this before the company's accounting year end to get the deduction in the current year.
3. Use the Annual Investment Allowance for Equipment
If you are planning to buy equipment — computers, machinery, vehicles, tools, office furniture — buy it before your accounting year end. The Annual Investment Allowance allows you to deduct 100% of qualifying spend in the year of purchase, reducing your taxable profit immediately rather than over several years. There is no benefit to waiting until next year if you were planning the purchase anyway.
4. Bring Forward Expenses, Defer Income (Where Appropriate)
If you are approaching the end of your accounting period and your profits are higher than expected, consider bringing forward any planned deductible spending. Renewing software subscriptions, buying consumables, or paying for professional services in the current period rather than the next one reduces this year's taxable profit.
Conversely, if you are near a tax threshold (the £50,000 small profits rate boundary, or the £50,270 higher rate threshold personally), deferring income into the next period keeps you below the threshold this year.
5. Employ Your Spouse or Partner (if Genuine Work Is Done)
Paying a salary to a spouse or partner who genuinely works in the business uses their personal allowance (£12,570) that would otherwise be wasted. The salary is deductible for the business. If they are a basic rate or non-taxpayer, the net tax cost of the salary is low while the CT saving is real. This must be genuine employment at a commercial rate — a nominal salary for no real work is not acceptable.
6. Claim the Employment Allowance
The Employment Allowance of £10,500 per year reduces your employer National Insurance bill. It is available to most businesses with more than one employee (single director companies where the director is the only employee do not qualify). If you have any employees including a part-time worker, cleaner, or additional director, check whether you are claiming the Employment Allowance. Many small businesses do not.
7. Check Your Flat Rate VAT Scheme Suitability
If you are VAT registered with taxable turnover below £150,000, the Flat Rate Scheme can reduce your VAT administration and sometimes your VAT bill. Under this scheme, you charge VAT at 20% to customers but pay a lower flat rate (varying by trade type) to HMRC, keeping the difference. For some service businesses, this generates a meaningful annual saving. For others (with high input VAT on purchases), the standard scheme is better. Review which scheme is right for you annually.
8. Use Gift Aid to Extend Your Basic Rate Band
If you donate to charity through Gift Aid, the amount of your donation extends your basic rate band — effectively reducing the portion of your income taxed at 40% or 45%. For a higher rate taxpayer who gives £1,000 to charity via Gift Aid, the gross donation is £1,250, and you can claim higher rate relief of £250 through Self Assessment. This is particularly useful in years where you have high income from property sales, dividends, or bonus payments.
9. Make Use of Your CGT Annual Exempt Amount Each Year
The CGT annual exempt amount is £3,000. Use it or lose it — unused allowance does not carry forward. If you have investments that have grown in value, consider realising gains up to £3,000 each tax year rather than allowing them to accumulate, which would create a larger CGT bill at exit. Between spouses, £6,000 per year can be realised tax-free with careful management.
10. Keep Proper Records Throughout the Year
This sounds basic but it is genuinely one of the most impactful things you can do. Poor records mean missed deductions, stressed year-end preparation, and higher accountancy fees. They also increase the risk of HMRC queries and penalties. Spending 15 to 20 minutes per week on bookkeeping — categorising transactions in FreeAgent, QuickBooks, or Xero — makes every other tax saving opportunity more accessible and your annual accountancy fee lower.
Client B ran a digital marketing agency in Wembley with two employees and annual profit of around £95,000. When he came to us, he was paying himself entirely as salary (no dividends), had never claimed the Employment Allowance, had no employer pension contribution in place, and was buying equipment in January (after his December year-end) instead of before it. We implemented tips 1, 2, 3, 5, and 6 in his first year with us. Total annual tax saving across the company and him personally: £14,200. His accountancy fee was £1,400 per year. The net saving in year one, after accountancy costs: £12,800.
Frequently Asked Questions
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