Contents
- Introduction
- Salary and Remuneration Review
- Dividend Timing
- Pension Contributions
- Employment Allowance
- Capital Purchases and Allowances
- Director’s Loan Accounts
- Income Thresholds and Personal Allowance
- Corporation Tax Position
- Acting Before April vs Waiting
- Summary
- FAQs
Introduction
As the 2025/26 tax year approaches its end on 5 April 2026, company directors should review their tax position before key allowances reset.
For owner-managed businesses, tax planning is not about one single decision. Salary, dividends, pension contributions and company expenditure all interact. The combined effect determines both personal tax exposure and corporation tax liability.
Waiting until after April limits options. Acting before the tax year closes allows directors to make structured, compliant adjustments while flexibility remains.
This guide outlines the main areas directors should review now.
Salary and Remuneration Review
Most directors extract income through a mix of salary and dividends. The balance between the two should be reviewed annually rather than left unchanged.
A salary should generally:
- Preserve entitlement to state pension and benefits.
- Utilise available personal allowance where possible.
- Avoid unnecessary employer and employee National Insurance.
Increasing salary before 5 April may make use of unused personal allowance. However, this may also trigger additional employer National Insurance contributions. The net position must be calculated carefully.
Remuneration planning should consider total company profits, dividend strategy and pension contributions rather than treating salary in isolation.
Dividend Timing
Dividends remain a common method of profit extraction, but the tax cost is no longer negligible.
Before declaring dividends, directors must confirm:
- There are sufficient distributable reserves.
- The dividend allowance has been utilised.
- Additional dividends will not push income into higher or additional rate tax bands unnecessarily.
Timing is critical. Bringing dividends forward into the 2025/26 tax year may allow allowances to be used before they reset. Conversely, deferring dividends to the next tax year may reduce exposure where income is already high.
All dividends must be supported by board minutes and dividend vouchers. Tax efficiency does not replace statutory compliance.akes sense. But a small group of service-based businesses may now find sole-trader status more efficient.
Pension Contributions
TPension contributions remain one of the most effective planning tools available to directors.
For 2025/26, the standard annual allowance is up to £60,000, subject to tapering for higher earners. In certain circumstances, unused allowance from the previous three tax years may be carried forward.
Employer pension contributions can:
- Reduce corporation tax.
- Avoid employee National Insurance.
- Build retirement provision in a tax-efficient environment.
Contributions must satisfy the wholly and exclusively test for corporation tax purposes and be commercially reasonable.
Once the tax year closes, the 2025/26 annual allowance cannot be reclaimed. Directors considering additional funding should act before 5 April.
Employment Allowance
The Employment Allowance reduces employer National Insurance liability for eligible companies.
Directors should confirm:
- The company meets the eligibility conditions.
- Payroll submissions correctly reflect the claim.
- Staffing changes have not altered qualification status.
Companies with a sole director and no other employees are generally not eligible. Where the allowance is available, ensuring it is correctly claimed prevents unnecessary cost.
Although not solely a year-end matter, reviewing this before April ensures the payroll position is accurate.
Capital Purchases and Allowances
If the company intends to invest in equipment or qualifying assets, the timing of expenditure can influence corporation tax liability.
Capital allowances may permit qualifying expenditure to be deducted from taxable profits. Bringing forward planned purchases before the accounting year end can accelerate tax relief.
Directors should assess:
- Whether expenditure qualifies for available reliefs.
- The impact on cash flow.
- Whether the purchase is commercially required.
Tax relief should support commercial investment, not drive unnecessary spending. However, aligning planned expenditure with the year end can improve efficiency.
Director’s Loan Accounts
Director’s loan accounts frequently create avoidable tax issues when not monitored.
If a director owes money to the company, consequences may include:
- A Section 455 corporation tax charge.
- Benefit-in-kind implications if balances remain outstanding.
Before 5 April, directors should review whether:
- Loan balances can be repaid.
- Dividends can be declared to offset balances.
- Interest needs to be applied.
Addressing loan accounts before the tax year end provides more flexibility than dealing with them retrospectively during accounts preparation.
Income Thresholds and Personal Allowance
Income tax thresholds remain frozen, which increases the likelihood of directors moving into higher tax bands.
Particular attention should be given to:
- Income exceeding £100,000, where personal allowance begins to taper.
- Exposure to higher or additional rate tax.
- The interaction between salary, dividends and other income sources.
In some cases, additional pension contributions before 5 April can reduce adjusted net income and restore personal allowance.
Allowances lost after the year end cannot be retrospectively reinstated.
Corporation Tax Position
Corporation tax rates now vary depending on profit levels. Directors should review projected profits before the accounting year closes.
Planning considerations may include:
- Employer pension contributions.
- Bringing forward allowable expenditure.
- Reviewing accruals and outstanding liabilities.
- Determining how much profit to retain versus extract.
Tax planning should align with commercial strategy. Retaining profits for reinvestment may, in some cases, be more efficient than immediate extraction at higher personal tax rates.
Corporation tax planning and personal tax planning should be considered together.
Acting Before April vs Waiting
The distinction between acting before 5 April and waiting until after April can materially affect the overall tax outcome.
Acting before the year end allows directors to:
- Use pension allowances for 2025/26.
- Utilise the dividend allowance before it resets.
- Adjust remuneration within the current tax year.
- Plan around income thresholds.
Once the tax year closes, these opportunities are fixed. Planning after April is forward-looking. Planning before April allows adjustment of the current year’s position.
Proactive review provides choice. Delayed review limits options.
Summary
TThe period before 5 April 2026 presents directors with a defined opportunity to review remuneration, pension funding, dividend timing and company expenditure.
Key areas to assess include:
- Salary and dividend structure.
- Pension contributions before allowances reset.
- Employment Allowance eligibility.
- Capital expenditure timing.
- Director’s loan balances.
- Income thresholds and personal allowance tapering.
- Corporation tax efficiency.
Tax planning should be structured, compliant and aligned with long-term objectives. Early review reduces risk and improves financial control.
FAQs
When must actions be completed to count for 2025/26?
All relevant actions must be completed before 5 April 2026 to fall within the current tax year.
Can dividends be declared at the end of March to reduce tax?
Yes, provided the company has sufficient distributable reserves and correct documentation is prepared. The wider income position must also be considered.
Are employer pension contributions preferable to personal ones?
In many cases they are more efficient, as they may reduce corporation tax and avoid National Insurance. The correct structure depends on individual circumstances.
What happens if no action is taken before April?
Annual allowances for 2025/26 may be lost. Certain planning opportunities cannot be recreated once the tax year closes.
Should expenditure be accelerated purely to reduce tax?
No. Expenditure must be commercially justified. Tax relief improves efficiency but should not drive unnecessary spending.
