The main corporation tax rate rose to 25% in April 2023 for companies with profits above £250,000. For businesses between £50,000 and £250,000, marginal relief applies. This makes proactive tax planning more valuable than ever.
Timing Your Income and Expenditure
One of the most straightforward planning tools is timing. If you can accelerate deductible expenditure into the current tax year (before your year-end), or defer income into the next year, you can reduce your current-year tax liability.
This might include bringing forward planned equipment purchases, prepaying certain business expenses, or timing invoicing around your year-end.
Capital Allowances and the AIA
The Annual Investment Allowance (AIA) gives 100% first-year relief on qualifying capital expenditure up to £1 million per year. This includes most plant and machinery, equipment, tools, and commercial vehicles.
There is also a 50% First Year Allowance (FYA) on qualifying assets — and the Full Expensing regime (100% in year 1) for new qualifying plant and machinery.
Getting your capital allowance claims right can make a material difference to your tax bill.
Research and Development (R&D) Credits
If your business undertakes qualifying R&D — developing new products, processes, or software — you may be able to claim R&D tax credits. These can reduce your tax bill significantly or even generate a cash repayment.
The scheme changed significantly from April 2023 with the merged RDEC/SME scheme from April 2024. It's worth getting a specialist review to check if you qualify.
Directors' Salary and Dividend Strategy
Most owner-managed companies pay directors a salary at the secondary NI threshold (£9,100 in 2024/25) to preserve the NI employment allowance, then top up with dividends. The optimal mix depends on your circumstances.
From April 2023, the dividend allowance reduced from £2,000 to £1,000, and from April 2024 to £500. Tax planning around dividends is increasingly important.
Pension Contributions
Employer pension contributions are fully deductible for corporation tax purposes and are not treated as taxable employment income for the employee (subject to annual allowance limits). Paying pension contributions through the company is often more tax-efficient than drawing a salary and contributing personally.
Loss Relief
If your company makes a trading loss, this can be:
- •Carried back one year against prior profits (generating a repayment)
- •Carried forward indefinitely against future profits of the same trade
- •Set off against other income in the same period (in certain circumstances)
We Work Proactively
We don't just prepare your accounts — we meet with you before year-end to identify planning opportunities, model the numbers, and make sure you're not paying more tax than you need to.