Year end tax planning for businesses

Article written by Connor Bassett

With the fiscal year coming to an end on 5 April 2026, it is now a good time for companies to review their own year-end planning.

Although companies may choose any accounting year end, effective planning ahead of that date can help reduce corporation tax liabilities, maximise reliefs, and prepare for upcoming legislative changes. This article outlines the key actions UK companies should consider.

A company’s rate of corporation tax depends on the level of taxable profits , plus certain dividends received by the company. Profits up to £50,000 are taxed at 19%, profits above £250,000 at 25%, and profits between these limits benefit from marginal relief, producing an effective rate of 26.5%. 

These thresholds are divided by the number of associated companies, making it important to review group structures, including companies owned personally outside the group.  

Thoughtful planning ahead of your year-end can help position your company within the small profits or marginal bands by reducing taxable profits. Below are some key areas to review when looking to reduce taxable profits. 

Capital expenditure

Capital Allowances often provide 100% tax relief on qualifying capital expenditure in the year of spend. The Annual Investment Allowance (AIA) provides a £1 million allowance per group (prorated for short periods) on most plant, machinery and special rate assets.

Where the AIA is fully utilised, new and unused plant and machinery may qualify for 100% Full Expensing, though future disposals can trigger balancing charges. We would recommend that the AIA is utilised in preference to Full Expensing.

From 1 April 2026, the main pool writing down allowance reduces from 18% to 14%, with hybrid rates applying to accounting periods spanning this date. Companies with significant spend may wish to accelerate spend to benefit from current rates and reduce taxable profits.

Pensions

Effective pension planning is essential for securing the financial future of directors and employees and optimising tax efficiencies.

Key strategies for pension planning include maximising employer contributions within limits to utilise both an employees’ maximum allowance and provide the company with a tax deduction.

Employer pension contributions are typically deductible when paid, not when accrued. Employees can receive tax relief on contributions up to £60,000 gross per tax year. If employees are below this limit, additional contributions before 5 April 2026 can help utilise allowances that would otherwise be lost whilst securing a corporation tax deduction for the company.

Dividends

You may wish to accelerate the payment of dividend ahead of 5 April 2026 to benefit from lower dividend tax rates. Dividend tax rates for individuals are increasing by 2% for basic rate (10.75%) and higher rate (35.75%) tax payers. There is no change to the dividend tax rate for additional rate (39.35%) tax payers.

The 2% increase for all but the additional rate will continue to make profit extraction via dividend payment more expensive. Make sure you reassess your remuneration strategy as a business owner.

Director loan accounts

Where a director has borrowed more from the company than they have lent, the director’s loan account is said to be overdrawn. Most owner managed companies are considered to be ‘close’ and so fall within the loans to participators rules. These rules mean that there may be a Corporation Tax liability, known as a s455 charge, if the account remains overdrawn 9 months and 1 day after the end of the accounting period.

The charge is currently 33.75% but will be increasing to 35.75% from 6 April 2026.

When the loan is then paid, released or written off, the charge can be reclaimed from HMRC 9 month and 1 day after the end of the accounting period in which the loan is repaid. Please note, you will have 4 years from the end of the accounting period the loan is repaid to reclaim the s455 tax.

Other planning points

• There have been changes to the R&D regime which take effect for all accounting periods starting on or after 1 April 2024.  
• From the 1 April 2025, the special tax regime for Furnished Holiday Lets (FHLs) was abolished, bringing these companies into the UK Property Business regime instead. Extra care will be needed when preparing tax returns that cover this date.  
• From 1 January 2026, companies can claim a 40% first year allowance on new and unused plant and machinery acquired for leasing or hiring. This does not apply to cars, second-hand assets or overseas leasing.

With the fiscal year-end approaching, now is a good time to review your tax planning and ensure you are making full use of the available reliefs. By considering the timing of capital expenditure, managing corporation tax thresholds, accelerating dividends, maximising pension contributions and reviewing director loan accounts, businesses can significantly improve their tax efficiency before upcoming rate changes take effect.

If you would like further information, please get in touch.