Tax-saving Opportunities for Businesses

Tax-saving opportunities for businesses start before the first invoice of the new tax year is raised. Each April brings a fresh set of allowances, reliefs and thresholds and, if you use them deliberately, they can cut liabilities without starving the business of working capital. Our owner-manager clients often tell us the same thing: they are happy to pay the tax that is due, but they do not want to pay a penny more than necessary. Placing tax alongside sales, people and cashflow planning is the surest way to achieve that balance.

The scope is wide. The personal allowance still sits at £12,570, but dividend and national insurance bands have shifted. Full expensing continues for qualifying plant and machinery, and the £1m annual investment allowance (AIA) remains open to every trading entity. The merged research-and-development (R&D) scheme, new electric-car benefit-in-kind rates and a lower secondary threshold for employer national insurance also shape the 2025/26 bill.

Business owners are not alone. The number of UK enterprises registered for VAT or PAYE reached 2.72m in March 2024, with companies accounting for 75.6% of the total. A resilient 95% of businesses were trading at the start of September 2024, despite persistent cost pressures. Those statistics underline how many firms could retain cash simply by applying the rules that already exist. In the guide that follows, we unpack the key reliefs, deductions and allowances and explain how to weave them into everyday decision-making.

Make full use of your personal allowance and dividend band

The standard personal allowance remains at £12,570 for 2025/26. If you run your business through a company, it’s usually best to draw a salary at or just below the primary national insurance threshold (£12,570) to protect your state pension record without triggering unnecessary tax or NICs.

The dividend allowance stays at £500, with dividends above that taxed at 8.75%, 33.75% or 39.35% depending on your band. Pair a modest salary with dividends to keep overall income in the basic‑rate band where possible. Remember that paying dividends requires sufficient post‑tax profits – plan distributions early rather than after the year has closed.

Capital allowances – the fastest route to immediate relief

Business owners can maximise tax‑saving opportunities through capital allowances.

Two generous schemes headline 2025/26.

Full expensing (companies only): Claim a 100% deduction on qualifying plant and machinery purchased between 1 April 2023 and 31 March 2026, with the government signalling its intention to make the relief permanent.
Annual investment allowance (all businesses): Deduct up to £1m of qualifying expenditure each year.

Timing matters. If you expect to spend heavily on equipment, align purchase dates so that the deduction falls in a profitable year. Use HMRC’s guidance on capital allowances for the qualifying criteria.

Research and development – relief still worth pursuing

From April 2024 the small and medium enterprises (SME) and research and development expenditure credit (RDEC) schemes merged into a single credit. For 2025/26 the net saving for profit‑making companies is 16.2% of qualifying costs, while loss‑makers can surrender losses for a payable credit worth 19%. Keep detailed project notes, staff timesheets and prototypes to support claims. Group companies should review their combined R&D intensity before the year end to stay within thresholds.

Pension contributions – build retirement and cut corporation tax

Employer pension contributions remain tax‑deductible in the year they are paid. With the annual allowance now £60,000 (and the lifetime allowance abolished), directors can extract profits efficiently while boosting retirement savings. Companies claiming full expensing should still find room for contributions – corporation tax relief at 25% makes pensions an attractive cashflow tool.

Electric cars and other employee benefits

Benefit‑in‑kind (BIK) rates for zero‑emission cars rise to 3% from April 2025 but stay competitive. Leasing or buying electric vehicles (EVs) through the company can still be more efficient than paying private mileage. Combine EVs with salary sacrifice arrangements so employees access low BIK rates while the company saves employer national insurance contributions (NICs).

Share schemes to retain and reward staff

Approved arrangements such as the enterprise management incentive (EMI) and company share option plan (CSOP) offer income‑tax‑free growth for employees and corporation‑tax deductions for the company. With the EMI market value cap lifted to £500,000 per employee, growing firms can now grant options earlier and at lower valuations.

According to the Office for National Statistics (ONS), UK businesses registered for VAT and/or PAYE numbered 2.72m in March 2024, with companies making up 75.6% of the total.
ONS Business Insights reported that 95% of UK firms reported they were trading in late September 2024, signalling resilience despite cost pressures.

These numbers underline how many enterprises could benefit from structured tax planning rather than leaving allowances unused.

VAT: Choose the right scheme and reclaim on time

If your taxable turnover exceeds £90,000 (2025/26 threshold), registration is compulsory. However, voluntary registration can allow recovery of input VAT on startup costs. Review whether the flat‑rate scheme or cash accounting scheme would suit your margin and credit terms. Accurate digital records under Making Tax Digital (MTD) are no longer optional – HMRC penalties mount quickly when submissions are late.

Loss relief and group planning

Trading losses can be:

carried back one year (sole traders) or three years against profits of the same trade (companies) – useful for recovering earlier tax paid
carried forward and offset without restriction against future profits from the same trade
group‑relieved to profitable subsidiaries, smoothing overall group liabilities.

Map forecast results early so that losses fall where relief is most valuable.

Making your tax‑saving strategy stick

Keep real‑time records: Cloud software integrated with bank feeds gives you daily visibility.
Schedule quarterly reviews: We meet clients at least every three months to adjust profit extraction, pensions and dividends.
Document decisions: Board minutes for dividends, option grants or asset purchases are simple evidence should HMRC inquire.

For further reading, HMRC’s employer rates for 2025/26 set out thresholds and BIK details.