Hello everyone,

In this newsletter we are covering year-end planning, an overview of Making Tax Digital (MTD) and a tax payments reminder.

As always, if there are any questions please let me know.

Kind regards,
Simon

Use It or Lose It: 5 Tax Allowances Business Owners Need to Use Before April

If you run a limited company or earn income through dividends and property, you have access to tax allowances that can save you thousands of pounds. The problem is, most of them reset on the 6th of April, and if you haven’t used them by then, they’re gone.

This isn’t about clever or unethical tax avoidance; it’s about not leaving money on the table because you forgot to plan properly. Here are 5 tax allowances you should consider using now.

1. Pension contributions

You can contribute up to £60,000 per year into your pension and get full tax relief on it. If you’re a director, this is one of the most efficient ways to extract profit from your company because it reduces your Corporation Tax bill and doesn’t attract National Insurance.

What most people don’t know is the carry-forward rule. If you didn’t use your full allowance in the last three years, you can carry that unused amount forward and contribute more than £60,000 this year. For example, if you only contributed £20,000 last year, you can add the unused £40,000 to this year’s limit and contribute £100,000 total.

This only works if you had earnings in those previous years and you make the contribution before the 6th of April. After that, the unused allowance from three years ago disappears.

Note that for high earners, the £60,000 annual contribution limit is restricted once adjusted income exceeds £260,000 and can be reduced to the minimum amount of £10,000 where adjusted income exceeds £360,000. If you are restricted in the contributions, you can make then alternative investments could be considered (e.g. ISAs – see later).

2. Employer pension contributions

If you’re going to contribute to your pension, do it through the company, not personally. Employer contributions are a business expense, which means they reduce your Corporation Tax bill. They also avoid both employer and employee National Insurance, which makes them significantly more efficient than taking a salary or dividend and then contributing personally.

For directors who want to extract profit tax-efficiently, this is one of the best options available. You lower the company’s taxable profit, build your retirement pot, and avoid paying unnecessary tax on the way through.

3. ISA allowances

The annual ISA limit is £20,000, and it resets every tax year. If you don’t use it, it’s gone. You can’t carry it forward, and you can’t get it back later.

ISAs are tax-free, which means any growth or income generated inside them doesn’t get taxed. If you’ve got cash sitting in a savings account earning interest, you’re paying tax on that interest. If it’s in an ISA, you’re not.

If you haven’t maxed out your ISA allowance for this tax year, do it before the 6th of April. Even if you’re just moving money from a taxable account into an ISA wrapper, it’s worth doing. For married couples, you each have an ISA allowance so if funds allow between you, you can put in £40,000 a year which can then be invested free of income tax and capital gains and withdrawn later with out a tax charge.

4. Dividend allowance

The dividend allowance dropped to £500 in April 2024, which means most directors are paying tax on nearly all their dividends now. If you’re planning to take dividends before the end of the tax year, make sure you’re using that £500 allowance and structuring the rest as tax-efficiently as possible.

If you’re married or have a business partner, consider whether dividends should be split differently to use both allowances and stay in lower tax bands. Small changes here can save meaningful amounts of tax.

When paying dividends, make sure you document them correctly and that your company has sufficient taxable profits to cover the dividend to be paid. This means reviewing year to date taxable income, preparing Board minutes and dividend vouchers to document the dividend and making sure it is paid.

5. Clear your Director’s Loan Account

If you’ve taken money out of your company and it’s sitting in an overdrawn Director’s Loan Account, you need to clear it before the end of your company’s financial year. If you don’t, HMRC can charge Section 455 tax at 33.75% on the outstanding balance.

This tax is refundable once you repay the loan, but it ties up cash unnecessarily and creates admin work you don’t need. If your loan account is overdrawn, either repay it, declare it as a dividend, or pay yourself a bonus before year-end.

We will be covering year-end tax planning more focused on individuals and personal tax in a further newsletter, in the meantime if you have any queries on year-end matters please do get in touch.

Making Tax Digital – are you ready?

MTD is coming and potentially applies to sole traders and landlords. The start date depends on the level of your combined sole trader and rentals income as follows:

• 6 April 2026 for those with sole trader income and rental income over £50,000;
• 6 April 2027 for those with sole trader income and rental income over £30,000;
• 6 April 2028 for those with sole trader income and rental income over £20,000;

The main changes include:

• You will need to keep digital records – software will be required to do this;
• Instead of the current annual return there will be quarterly returns and a year-end return – so 5 returns a year
• Quarterly returns to be filed in 1 month of quarter end, so need to maintain records regularly through the year not just for the year-end. We will be working to a weekly / monthly basis to ensure you are up to date.
• Need to have bank accounts for business and rental income separate from personal accounts.

We will contacting clients who we expect to be in the MTD regime in April in the next couple of weeks to discuss and agree the best way forward and software to adopt where not already being used.

For those who will come into MTD in 2027 or 2028, we will be discussing with you the changes required over the coming months so that you have chance to prepare in advance. You may wish to adopt using accounting software now, so you have time to get used to it before it is forced upon you.

Self-assessment tax payments

If you have not paid all your 2024-25 you should aim to do so before 2 March 2026 to avoid a HMRC late payment surcharge of 5%.