2026 Tax Year End Planning

This may be written on an unlucky Friday 13th, but let's see what we can do to bring a bit of luck to you for the rest of the tax year just over 50 days away:

1. Review Your Optimum Dividend-Salary Mix

Shareholder-directors review your mix of dividends-salary to ensure they are optimised. If it is different to payments you've made so far, ensure your February and March salary and dividends are adjusted accordingly.

For example, if your company suffers the 26.5% marginal corporation tax rate and some or all of the £10,500 national insurance employer annual allowance is available to you, you’re likely to find that a salary higher than £12,570 is more tax efficient for you.

With continued frozen tax allowances and thresholds, you're more likely to get caught by 33.75%, 39.35%, 40%, 50.63%, 60% or 45% tax rates so also check you'll be within the tax band you're expecting staying under £50k, £60k to avoid child benefit repayments or £100k to keep your tax free personal allowance.

You may ask your spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

2. Beat The Increased Dividend Tax Before 6 April 2026

With an additional 2% tax added onto existing already high rates, if your optimum mix of dividends-salary includes some dividends ensure you take your optimum dividend on or before 5 April 2026. Or if you have discretion on the timing of any other dividend, try to receive it on or before 5 April 2026. For example, some share buybacks are subject to dividend tax. It will therefore be tax efficient to ensure this occurs on or before 5 April 2026.

The new rates will be 10.75% within the £50k tax band, 35.75% over £50k to £100k, 53.63% over £100k to £125k due to the withdrawal of the tax free personal allowance. The top 39.35% from £125k stays the same.

3. Estimate Your 2026 Taxable Profits

Sole traders, partners and shareholder-directors should all review your taxable profits.

Sole traders and partners, if it looks as though you'll be taken you into the 40% higher rate band of £50k, or over the threshold you're aiming for, consider what action you might take before 5 April 2026. Shareholder-directors with 31 March 2026 year ends consider your actions if you want to get your corporation tax bill as low as possible such as under £50k for the 19% rate. 

You might invest in equipment eg office equipment, PC, van, other equipment, 100% electric car or make pension contributions. See further below.

4. Making Tax Digital - Sole Traders and Landlords - April 2026

Whilst reviewing your profits to April, also check your total gross sales and rents showing in your 2025 tax return. If these total over £50k, regardless of your profit, you'll be into the new MTD ITSA regime where quarterly income and costs need to be submitted to HMRC. There's no need to change anything with your accountant as they will prepare your income tax return as usual and no need for fully blown software unless this has other value for you.

The minimum is to extract your income and costs from your business bank account and tick certain figures to be transferred through simple software to HMRC electronically four times a year. 

5. Pensions, Pensions, Pensions

Despite the upcoming inheritance tax (IHT) charges from April 2027, corporation tax of 25%/26.5% is often a good saving for many company owners, particularly where under current rules 25% of your pension pot may be taken tax free from age 55/57. 

With a company March year end if your profits might be higher in the year to 31 March 2026 than in the year to 31 March 2027, you may save up to 7.5% more tax from making pension contributions in 2026, subject to the £60k annual allowance.

If as a sole trader or employee your income is over £100k, you’ll save an extra 40% from gross pension contributions made to get income down under £100k to save an extra 20%. For income over £125k, you save an extra 25%. Your pension pot receives 20% direct from the government, boosting its value in the background.

Before making a decision, please take appropriate advice about your entire estate including the overall mix of your pensions and other assets and investments.

6. Annual Investment Allowance and Electric Car First Year Allowance - 100%

For all businesses, sole traders and limited companies, the Annual Investment Allowance rewards investment of up to £1m on plant and equipment or eligible commercial property refurbishment with 100% tax relief. Similarly, new electric cars purchased benefit from 100% tax relief with no limit.

If you plan to incur these costs near to your year end, such as 31 March 2026, ensure you meet the conditions for a claim in this year, so you don’t have to wait a year to get the cashflow tax saving.

For example, investing £100k might save £25k of corporation tax (25%), or £45k of income tax (45%) which is better in your pocket one year earlier than with HMRC.

Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

7. Corporation Tax Returns Due From April 2026 - Double Late Filing Penalties

If you send in your corporation tax return late after April 2026, your late filing penalties will double, starting with an increase from £100 to £200. For ongoing companies with 'normal' year ends, the first year end caught will be 30 April 2025, so there's even more reason to send in your return on time.

8. Entrepreneurs Relief (BADR) Tax Increase - 14% To 18%

If you're in the middle of a sale or liquidation of your business eligible for 14% BADR ensure you exchange or receive your liquidation distribution by 5 April 2026 so you don't pay the higher 18% coming in from 6 April 2026.

9. Director Small Wins 

Remember to maximise your director treats for the tax year ended 5 April 2026; trivial benefits under £50 each, totalling an annual £300 each, annual parties expenditure up to £300 each including guest or have a private health care check.

10. PAYE Tax Codes - Check!

These are often wrong and HMRC is using them more, so expect even more errors! For example, as tax relief for home office costs isn't available from April 2026, tax codes being issued now for the 2026/27 tax year need careful scrutiny. Make sure you understand yours and if it's wrong, call HMRC to get it corrected.

11. Cash ISA Limits - April 2027

Although the reduction from £20k to £12k for cash ISAs if you're under 65 doesn't come until April 2027, if you prefer a cash ISA, make sure you use the £20k's available for 2025/26 and 2026/27 while you can.

12. Inheritance Tax  - Increases From April 2026

The reduction in 100% relief from IHT known as Business Property Relief from April 2026 to a lesser extent then originally, still requires consideration by many large estates with farms and businesses. Exact advice will be dependent on values, family dynamics, cashflow... Ensure you get good advice from the right expert.

Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions.