I plan tax for my clients all year, not just in the run‑up to Self Assessment. That’s because sensible, legal tax minimisation is mostly about timing, structure and making full use of allowances — not about clever (and risky) schemes. Below I share practical, day‑to‑day moves I use with UK micro‑businesses and sole traders that cut tax bills without crossing a line. These are the kind of steps anyone can incorporate into a simple annual routine.
Keep a rolling tax calendar
I always advise clients to keep a small, rolling tax calendar. Key dates (PAYE monthly, VAT quarters, corporation tax payment, Self Assessment deadlines) are obvious, but I add reminders for softer actions too: pension contributions, year‑end inventory checks, and dividend decisions. A calendar forces decisions to happen early rather than being left until the last minute when choices are limited.
Make the most of allowances — and use them early
Allowances disappear if unused. I help clients check these every quarter:
- Personal Allowance (income tax): know when your income approaches the next band
- Dividend Allowance: plan drawings from a company to use low‑rate dividend bands
- ISA allowances: save from after‑tax income into ISAs to shelter future returns
- Annual Exempt Amount (capital gains): time disposals across tax years when possible
For example, if a capital sale can be delayed slightly and would fall into the next tax year where you expect lower taxable income, it often makes sense to delay. These moves are small but add up over several years.
Pensions: a powerful, underused tool
I regularly recommend putting surplus profit into a pension. For sole traders and company directors this is one of the most tax‑efficient choices because contributions attract tax relief at the individual level and can reduce NICs or corporation tax for companies. I use a simple rule of thumb with clients:
- If you pay corporation tax, consider employer pension contributions — they’re deductible for the company and don’t trigger employee NICs.
- For higher‑rate taxpayers, personal pension contributions increase tax relief at 40% or 45% once claimed via Self Assessment.
| Scenario | Tax effect |
|---|---|
| Director makes employer pension contribution from company | Company reduces taxable profits; individual keeps pension benefits tax‑deferred |
I recommend online platforms I’ve tested, like AJ Bell and Hargreaves Lansdown for personal pensions and payroll provider integrations that post employer contributions straight through payroll.
Timing purchases and capital allowances
Where possible, I align capital spend with accounting year‑ends to maximise relief. The Annual Investment Allowance (AIA) often lets small businesses claim 100% first‑year relief on qualifying plant & machinery, which is hugely useful for cutting current tax bills.
- Plan larger purchases so they fall into a year where you need to reduce taxable profit.
- If you can, pool smaller items to make use of AIA rather than writing them off over many years.
Don’t forget super‑deductions (if available for the period), and for cars check the CO2 bands — electric and low‑emission cars attract more favourable claims.
Payroll, dividends and extracting profits
For owner‑managed companies, the split between salary and dividends is a recurring conversation. My approach is pragmatic:
- Pay a small salary up to the secondary NIC threshold to preserve state benefits and pension auto‑enrolment rules.
- Top up with dividends to use the dividend allowance and keep clients in lower tax bands where possible.
- Make dividend decisions with a simple diary: record board minutes and issue shares properly — HMRC looks for substance.
Small timing tweaks (issuing dividends in the next tax year, for example) can reduce the effective rate for that year, particularly if income is borderline between bands.
Claim every allowable expense and relief
I find businesses often miss everyday deductions. I go over the obvious and the less obvious with clients:
- Home‑office proportion if you work from home — don’t overclaim, but use a fair method (council tax, utilities apportioned by room/time).
- Business subscriptions, training, trade association fees — many of these are allowable.
- Use the simplified flat rate for business mileage (HMRC advisory rates) or actual costs if you keep accurate records — I usually recommend a mileage log app like MileageWise or the built‑in trackers in Xero/FreeAgent.
VAT — choose the right scheme
VAT schemes can reduce admin and sometimes cashflow costs. I look at:
- Cash accounting vs accrual — cash accounting is often better for cashflow if customers pay late.
- Annual Accounting Scheme — useful for predictable businesses; you pay on account and can smooth payments.
- Flat Rate Scheme — good for low cost of goods businesses; check the flat rate percentage against your margin.
Switching schemes at the right time can reduce interim tax pressure. Always model the year‑end effect before switching.
Use tax‑efficient benefits
As a small employer you can offer benefits that are tax‑efficient for both you and employees (including a spouse acting legitimately as an employee). Examples I use with clients:
- Employer pension contributions (as noted above)
- Trivial benefits (small vouchers/gifts under HMRC limits)
- Interest‑free or low‑interest employee loans within HMRC rules
Document everything carefully. HMRC is looking for commercial substance, so make sure roles and pay match work done if you include family members on payroll.
Keep records up to date and review quarterly
Good recordkeeping is the backbone of calm tax planning. I recommend cloud accounting (Xero, QuickBooks, FreeAgent) so you can run P&Ls, cashflow forecasts and tax estimates at any time. Every quarter I check:
- Projected taxable profit for the year
- Corporation tax or Self Assessment estimates
- Opportunities to accelerate or delay income/expenses
Even a short quarterly meeting with your accountant (or a 30‑minute review with yourself using a checklist) saves more tax and stress later than a rushed year‑end scramble.
Take advantage of reliefs you actually qualify for
Reliefs such as R&D tax credits, Patent Box, or business rates relief are legitimate and underclaimed. I don’t recommend chasing every relief — focus on ones that clearly apply to your activities. For R&D, keep contemporaneous records of the technical challenges, staff time and costs. If you’re unsure, a short feasibility review from an adviser specialising in the relief can pay for itself many times over.
Finally, always keep commercial reality in mind. Tax planning should support your business goals — it’s as much about preserving cashflow and reducing risk as it is about cutting the bill. If you want, I can share a simple quarterly checklist you can use to start implementing these moves — it’s what I give my small‑business clients when we begin a year of proactive tax planning.
