Smart Tax Planning: A Guide for Business Owners

1. Maximise Allowable Deductions
Claiming all eligible expenses is one of the most effective ways to lower your taxable income. Common deductible business expenses include:

• Office rent and utilities
• Business travel and mileage
• Employee salaries and benefits
• Professional services (accountants, consultants, legal fees)

Ensuring that every expense is properly documented will help you claim the maximum allowable deductions.

2. Take Advantage of Available Tax Reliefs
The UK government offers several tax relief schemes that business owners can use to reduce their tax bills. Some key reliefs include:

• Annual Investment Allowance (AIA) – Businesses can claim 100% tax relief on qualifying purchases of equipment, machinery, and IT infrastructure up to a set limit.
• Business Rates Relief – Small businesses operating from certain premises may qualify for relief on their business rates.
• Employment Incentives – Hiring apprentices or employees through government-backed schemes can offer tax relief or employer National Insurance savings.

Understanding and utilising these reliefs can lead to significant savings and help you reinvest in your company’s future.

3. Plan Your Dividend and Salary Structure Efficiently
For business owners who pay themselves through a combination of salary and dividends, structuring payments correctly is key to minimising tax liability.

• Dividends are often taxed at a lower rate than salary, making them a tax-efficient way to extract profits.
• Keeping salary within the tax-free personal allowance and the National Insurance threshold can help reduce overall tax exposure.

Consulting with an accountant can help you determine the best balance between salary and dividends based on your individual circumstances.

4. Improve Record-Keeping for Tax Efficiency
Maintaining precise financial records is key to successful tax planning. Poor record-keeping can lead to missed deductions, late filings, and potential HMRC penalties.

• Use accounting software such as Xero or QuickBooks to automate record-keeping and ensure accuracy.
• Track receipts digitally with apps to ensure no expenses are overlooked.
• Conduct quarterly financial reviews with your accountant to stay on top of your tax position and adjust your strategy accordingly.

Better organisation means fewer surprises when tax deadlines approach and maximised opportunities for savings.

It’s also important to prepare now, if not already, for Making Tax Digital (MTD). This scheme is an HM Revenue & Customs (HMRC) initiative designed to modernise the way people submit their taxes in the UK. Businesses and individuals will need to switch from submitting paper returns or spreadsheets to using software which links securely with HMRC systems.

From April 2026, self-employed individuals and landlords with an income of over £50,000 will be required to keep digital records as well as providing HMRC, through MTD compatible software, quarterly updates on their income and expenditure. Those with an income between £30,000 and £50,000 will be obligated to do this from April 2027.

5. Manage Payroll Efficiently to Improve Cash Flow
Payroll is a significant expense for any business, and tax-efficient payroll management can make a huge difference in cash flow.

• Ensure accurate National Insurance contributions and tax deductions.
• Take advantage of Employment Allowance, which reduces employer National Insurance costs.

If payroll management is taking up too much time or causing financial strain, consider outsourcing to an accounting firm to streamline the process.