The start of the new tax year is one of the most important moments for tax planning for limited companies in the UK.

Yet many directors fall into the same traps every April – mistakes that quietly lead to:

• Higher corporation tax
• Cash flow problems
• Compliance risks

If you want to run a more efficient and profitable business this year, these are the mistakes to avoid.

1. Not Reviewing Your Salary and Dividend Strategy

One of the most common issues in director tax planning is simply repeating last year’s approach.

Why this is a problem:

• Tax thresholds and allowances change
• Your profit level may be different
• You could be extracting income inefficiently

What to do instead:

Review your salary vs dividend split at the start of the tax year and regularly throughout, not retrospectively. This ensures you’re using allowances correctly and avoiding unnecessary tax.

2. Ignoring Corporation Tax Planning Early

Many business owners delay corporation tax planning in the UK until year-end.

By then:

• Most planning opportunities are gone
• You’re left reacting instead of optimising

What to do instead:

Forecast your annual profit early and estimate your corporation tax liability. Set aside tax monthly to avoid cash flow shocks.

3. Mixing Personal and Business Finances

This is a major red flag from both a tax and bookkeeping perspective.

Common issues include:

• Paying personal expenses through the company
• Taking irregular drawings without structure

Risks:

• Director’s Loan Account complications
• Additional tax charges (e.g. Section 455)
• Inaccurate financial reporting

What to do instead:

Operate a clear and consistent drawings policy and keep personal and business spending separate.

4. Leaving Tax Planning Until Year-End

Effective tax planning for limited companies should happen throughout the year—not just in March.

Waiting too long leads to:

• Rushed decisions
• Missed reliefs
• Poor cash utilisation

What to do instead:

Plan proactively around:

• Pension contributions
• Capital expenditure
• Timing of income and costsEffective tax planning for limited companies should happen throughout the year—not just in March.Waiting too long leads to:
  • Rushed decisions
  • Missed reliefs
  • Poor cash utilisation

  What to do instead:

  Plan proactively around:

  • Pension contributions
  • Capital expenditure
  • Timing of income and costs

5. Poor Bookkeeping From the Start of the Year

Your financial data is only as good as your bookkeeping.

Starting the year poorly often leads to:

• Misreported profits
• Incorrect tax estimates
• Higher accounting costs

What to do instead:

Maintain accurate, up-to-date records using software like Xero, with monthly reconciliations as a minimum standard.

6. Overlooking VAT Planning Opportunities

VAT is often treated as purely administrative – but it has real strategic impact.

Common mistakes:

• Staying on the wrong VAT scheme
• Missing registration thresholds
• Poor cash flow management

What to do instead:

Review your VAT position annually to ensure you’re using the most efficient scheme for your business.

7. Not Setting Clear Financial Targets

Without defined goals, most businesses drift.

This results in:

• Reactive decision-making
• Inconsistent profits
• Inefficient tax outcomes

What to do instead:

At the start of the tax year, set:

• Revenue targets
• Profit goals
• Expected tax liabilities

This turns your finances into a management tool, not just a reporting requirement.

How to Get the New Tax Year Right

Strong tax planning for limited companies in the UK isn’t about last-minute fixes – it’s about consistent, informed decisions throughout the year.

The most successful directors:

• Review their strategy early
• Stay on top of their numbers
• Make proactive, tax-efficient decisions

Final Thoughts

Avoiding these common mistakes can significantly improve:

• Your tax position
• Your cash flow
• Your overall financial control

The new tax year gives you a clean starting point – what you do in the first few months will shape the rest of the year.

Need Help With Tax Planning for Your Limited Company?

If you want to:

• Reduce your corporation tax
• Improve cash flow
• Stay fully compliant

…it starts with having the right systems and strategy in place early.

To arrange a free call to discuss your business, please call 01386 366741

If you run a limited company, one of the biggest financial decisions you make each year is how to pay yourself.

Should you take a salary?

Should you take dividends?

Or both?

For most UK company directors, the most tax-efficient strategy is usually a combination of salary and dividends. But the exact mix depends on tax thresholds, National Insurance rules, company profits, and your wider financial situation.

In this guide we explain how director remuneration typically works in 2026/27, the mistakes many business owners make, and how to plan your income tax efficiently.

You can also test different scenarios using our free Director Dividend Calculator here:

https://sarahsallis.co.uk/resources

Dividends vs Salary for Directors

When you run a limited company, you can take money out of the business in several ways, including:

• Salary through PAYE
• Dividends from company profits
• Pension contributions
• Business expenses

For most owner-managed companies, salary and dividends are the two main methods used to pay directors.

Each is taxed differently.

Understanding the difference is key to paying yourself tax efficiently.

Director Salary: How It Works

A salary is treated in the same way as employee income.

This means it is subject to:

• Income tax
• Employee National Insurance
• Employer National Insurance

However, salaries are deductible for Corporation Tax, which means they reduce the company’s taxable profits.

For this reason, most directors still take a small salary, even if the majority of their income comes from dividends.

Another advantage is that taking a salary above certain thresholds ensures you continue to receive National Insurance credits towards your State Pension.

Dividends: How Directors Take Profit

Dividends are payments made to shareholders from company profits.

Unlike salary, dividends:

• Are not subject to National Insurance
• Must be paid from after-tax profits
• Are taxed at dividend tax rates

This is why dividends are often the more tax-efficient way to extract profits from a company.

However, dividends can only be paid if the company has sufficient profits available.

Before declaring dividends, directors should ensure the company has:

• Up-to-date accounts
• Enough retained earnings
• Paid or accounted for Corporation Tax

Without this, dividends may be considered illegal dividends, which can cause accounting and tax issues.

The Dividend Allowance

Each individual receives a dividend allowance, allowing a small amount of dividend income to be taxed at 0%.

Although this allowance has been reduced significantly in recent years, it still provides a small tax-efficient buffer.

Once the allowance is used, dividend income is taxed at the relevant rates depending on your overall income level.

This means the amount of salary you take can affect how your dividends are taxed.

Why Directors Use a Dividend and Salary Strategy

Why Directors Use a Salary and Dividend Strategy

The reason most company directors combine salary and dividends is simple.

Salary creates:

• Corporation Tax relief
• National Insurance credits

Dividends avoid:

• Employee National Insurance
• Employer National Insurance

This combination usually creates the most efficient balance between company tax and personal tax.

But the ideal mix changes depending on your income level and business profits.

Common Mistakes Directors Make

Over the years we’ve seen many directors try to manage this themselves and accidentally increase their tax bill.

Here are some of the most common issues.

Paying dividends without checking profits

Dividends must be supported by sufficient profits. Paying dividends without checking retained earnings can create problems.

Taking too much salary

Higher salaries increase both employer and employee National Insurance.

Ignoring personal tax thresholds

Dividends count towards your overall income and can push you into higher tax bands.

Poor documentation

Dividend payments should always be supported by:

• Dividend vouchers
• Board minutes
• Proper accounting records

Without these, HMRC may challenge the payments.

Planning Your Director Pay Properly

The most tax-efficient strategy is not just about minimising personal tax.

It’s about balancing:

• Corporation Tax
• Dividend tax
• National Insurance
• Future tax planning

Other factors also affect the best approach, including:

• Pension contributions
• Other employment income
• Student loans
• Benefits in kind
• Long-term financial planning

That’s why the right strategy for one director may not work for another.

Try Our Free Director Dividend Calculator

If you want to see how different salary and dividend combinations affect your tax bill, we’ve created a free tool for UK directors.

You can access it here:

https://sarahsallis.co.uk/resources

Our calculator helps you explore:

• Different salary levels
• Dividend strategies
• Estimated personal tax
• Total income outcomes

It’s designed to give directors a quick, practical way to understand their options before speaking with their accountant.

Need Help Planning Your Director Salary?

At The Accountancy Office, we help limited company directors structure their income tax-efficiently while keeping their businesses fully compliant.

If you’d like help planning your salary and dividend strategy, our team would be happy to support you.

Good tax planning doesn’t just save money this year.

It helps you build a stronger, more profitable business long term.

If you’re staring at a VAT Repayment Plan bill and thinking, “I’ll deal with that later,” stop. 

HMRC doesn’t reward avoidance, but they do respond to early, proactive action.

A VAT repayment plan, officially called a Time to Pay arrangement, allows businesses to spread VAT over manageable monthly instalments. The key word there is before the deadline.

HMRC is far more cooperative when:

• You contact them before the VAT due date
• You’re up to date with VAT returns
• You propose a realistic repayment plan, not wishful thinking

Interest will still apply, but penalties are often avoided entirely if the arrangement is agreed in advance.

What trips most businesses up is waiting until cash is already gone. VAT isn’t a surprise expense, it’s money you collected on HMRC’s behalf. If cash flow is tight, the solution isn’t silence, it’s structure.

If VAT repayments are becoming a pattern rather than a one-off, that’s a bigger issue. It usually points to pricing, margins, or poor cash flow forecasting, not “bad luck.”

We can help with all of the above. Get in touch and arrange your free call.

Most directors brace themselves for December expenses – but here’s the twist, HMRC can actually contribute to your Christmas… if you know the rules.

This isn’t one of those “creative accounting hacks” you see on TikTok. These allowances are built into UK tax legislation, they’re under-used, and they can genuinely take the pressure off your festive spending.

Let’s break down the four big opportunities directors regularly miss.

1. The £150 Staff Party Allowance

Every year, your company can treat its employees to up to £150 per head, completely tax-free.
That includes food, drinks, entertainment and the taxi home.

Key conditions:
• It must be an annual event (Christmas party counts).
• It must be open to all employees.
• Stay under £150 per head or the whole thing becomes taxable.

Yes, even a sole director can benefit, as long as there’s a legitimate company event. If you’re eating a festive meal alone because you only employ yourself, that’s between you and your conscience, but the allowance still stands.

2. Tax-Free Director Gifts (Trivial Benefits)

As a director, you can receive up to £300 per year in tax-free trivial benefits.
That’s up to £50 per gift, not cash, and not a reward for doing your job.

Think:
• Dinner out
• A Christmas hamper
• A candle you pretend you didn’t buy yourself
• Nice bottle of wine
• Even a little “treat yourself” luxury

If it’s genuinely a perk, not a bonus, the business can pay and you pay zero tax.

3. £50 Gifts for Your Team

Want to give your staff a little something without triggering PAYE or NI?
You can buy up to £50 per gift (again, following the trivial benefit rules) and the business gets a corporation tax deduction.

Perfect for:
• Chocolates
• Gift cards (not cash)
• Mini hampers
• Christmas drinks
• Desk treats

It’s simple, generous, and totally legitimate.

4. Charitable Donations

Festive giving counts too.

Company donations to registered charities are corporation-tax deductible, which means your business saves tax while doing something genuinely meaningful.

No wrapping paper required.

The Bottom Line

If you use these rules properly, HMRC genuinely does step in as an unexpected Secret Santa. Not because they’re generous, but because these allowances were designed to support employee wellbeing and business culture.

Most directors leave thousands of pounds of tax-efficient benefits unused each year.
That is optional. Overspending at Christmas doesn’t have to be.

If you want to know exactly what you can claim, or you want us to check you’re using these allowances correctly, get in touch. Your Christmas might cost less than you think.

Yesterday’s 2025 Autumn Budget brought plenty of speculation but relatively little genuine support for small business owners. While there have been no increases to the main rates of tax, National Insurance or VAT, the reality is that businesses are being asked to absorb rising costs for longer, with very little incentive to grow or invest.

Below is a clear summary of the key changes most likely to affect you and your business.

1. Minimum wage rises – higher payroll costs from April 2026

From 1 April 2026, the National Living Wage and National Minimum Wage will rise:

• National Living Wage (21+) increases by 4.1% to £12.71 per hour
• 18–20 year olds increase by 8.5% to £10.85 per hour
• 16–17 year olds & apprentices increase by 6.0% to £8.00 per hour
• Accommodation offset increases to £11.10 per day

What this means for you:

If you employ staff on or near minimum wage, your wage bill will rise again, along with employers’ NI and pension costs.

Action: These rates should be built into your budgets and pricing strategy now so margins are not slowly eroded.

2. Frozen income tax thresholds – the stealth tax continues

Income tax thresholds remain frozen until 2031. While tax rates have not risen, more of your income will gradually fall into higher bands as earnings rise.

What this means for you:

Directors and employees alike will experience higher effective tax rates over time, even where pay increases are modest.

3. Dividend, property and savings tax – key increases

Dividend tax

• Basic rate up 2 percentage points to 10.75%
• Higher rate up 2 percentage points to 35.75%

Property income (from April 2027)

New property-specific tax rates will apply:

• Basic rate 22%
• Higher rate 42%
• Additional rate 47%

Finance cost relief will be restricted to the 22% property basic rate.

Tax on savings interest (from April 2027)

Tax band rates on savings interest will increase by 2 percentage points. New tax rates will be 22% at the savings basic rate, 42% at the savings higher rate and 47% at the savings additional rate for 2027 to 2028.

What this means for you:

• If you pay yourself mainly via dividends, your personal tax bill will rise.
• If you own rental properties or have significant savings income alongside your business income, your overall tax burden will increase again.

Action on dividends: Ask us for a personalised calculation to see if it is still worthwhile extracting profits via dividends or whether you may now be better off taking a higher salary, reducing Corporation Tax but accepting higher personal tax.

4. Property tax – challenging environment for landlords

Combined with the new property tax rates, this is not a friendly landscape for traditional buy-to-let landlords.

You may wish to consider whether limited company ownership would improve your position; however, transferring property into a company is complex and only works where strict conditions are met. It does not suit everyone and can trigger Stamp Duty and Capital Gains Tax.

Action: Seek specialist advice before making any structural changes. We have a trusted property tax advisor who can assist where appropriate.

5. Pension salary sacrifice – NIC advantage capped

From April 2029:

Salary sacrifice pension contributions above £2,000 per year will no longer be fully exempt from National Insurance. Both employee and employer NIC will be payable on the excess.

What this means for you:

Salary sacrifice still has value, but the strongest NI benefit is capped. This needs to be factored into longer-term planning rather than assumed to remain optimal.

6. Business rates – relief and expansion no longer penalised

From 1 April 2026:

• Lower rate multipliers for many retail, hospitality and leisure premises with rateable values under £500,000
• A new higher multiplier for properties with rateable value above £500,000, particularly impacting large warehouses and distribution sites
• Transitional relief and an extended Small Business Rates Relief grace period of up to three years when taking on a second property

What this means for you:

If you occupy small high-street premises, you may benefit from lower long-term rates. If you operate from large or high-value premises, costs may rise.

Important change for expanding businesses:

Previously, opening a second premises meant losing your business rates relief and both sites becoming fully chargeable. Under the new rules, you will now keep your relief when opening another branch. Expansion is no longer financially penalised in the same way.

7. Capital allowances – timing now matters more

From 1 January 2026:

• New 40% First Year Allowance introduced
• Writing Down Allowance reduced from 18% to 14%

There is still incentive to invest, but careful planning around timing and scale of expenditure will now have greater tax impact.

8. Electric vehicles – new mileage charge

From 1 April 2028, a new mileage levy will apply:

• 3p per mile for electric vehicles
• 1.5p per mile for hybrids

This will be payable alongside road tax.

What this means for you:

EVs remain tax-efficient in some scenarios, but long-term cost calculations should now include this additional charge.

9. ISA changes – reduced cash allowance from April 2027

• Previously £20,000 could be held in a Cash ISA
• Now limited to £12,000 cash. The overall ISA limit remains at £20,000, meaning you can invest the remaining £8,000 in stocks & shares
• More generous limits continue for those aged over 65, enabling them to continue investing £20,000 into a cash ISA

This nudges savers towards higher investment exposure and may affect how you structure personal reserves.

10. Taxi Tax – VAT now applies to the full fare

Taxi and private hire operators previously paid VAT only on their commission portion. With effect from 2 January 2026, VAT at 20% will apply to the entire journey fare. The policy closes the long-contested Tour Operators Margin Scheme (TOMS) exemption. Private hire vehicle operators such as Uber and Bolt, will all be on a level playing field with respect to VAT accounting.

What this means for you:

As a taxi operator, this will increase VAT liabilities and may force price increases or reduced margins within the sector. As a taxi-user, your fares could increase by up to 20%.

Final take – is it good or bad?

Despite all the speculation, there is some marginal good news for business owners. There have been no increases to the main rates of tax, National Insurance or VAT.

However, this is not support, it is prolonged pressure.

Costs will continue to rise, particularly through minimum wage increases, while frozen tax thresholds quietly squeeze profitability. There remains no meaningful incentive to stimulate growth or encourage investment.

Cash flow management will therefore remain challenging for many businesses. Keeping up-to-date accounts, understanding your numbers and reviewing your financial position regularly remains as crucial as ever.

The businesses that adapt will be the ones that stay close to their data, challenge their assumptions and make decisions based on clarity rather than instinct.

If you’re inclined to do so, you can read the full Autumn Budget 2025  here.

If you would like to discuss how these changes specifically affect your business or your personal tax position as a director, please get in touch to arrange a complimentary 20 minute call and review. We’ll be happy to help.

For years, spreadsheets have been the go-to tool for tracking income and expenses. But under Making Tax Digital (MTD), they just won’t cut it. Here’s why.

Spreadsheets aren’t fully digital

MTD requires digital records and a direct link to HMRC. Copying and pasting figures into a form won’t be allowed – it breaks the “digital link” rule. However, you can look into ‘bridging software’ that will convert your spreadsheet to MTD compliant format.

Risk of errors

Spreadsheets are prone to mistakes. One wrong formula or accidental overwrite can cause huge problems, especially when quarterly reporting is mandatory.

No automation

Software like Xero pulls in bank transactions, invoices, and receipts automatically. Spreadsheets can’t match that — meaning more admin and higher risk of missing transactions.

Penalties for non-compliance

If HMRC finds you’re not keeping records in an approved way, you risk penalties and extra scrutiny.

The better alternative: Cloud accounting software

Xero and other MTD-compliant tools are designed to:

• Maintain digital records in line with HMRC rules
• Submit quarterly updates automatically
• Provide real-time visibility of your tax position

Summary

Spreadsheets might feel familiar, but they’ll soon be a compliance risk. By switching now, you’ll not only be MTD-ready, you’ll also benefit from smarter bookkeeping, better reporting, and less admin.

Talk to us today about moving onto Xero ahead of Making Tax Digital.

Book a call with us today and we’ll walk you through what MTD means for your situation.

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Book a call link: https://calendly.com/accountancyoffice/makingtaxdigital