Planning for your business year-end and tax year-end

Understanding what worked, what did not and why provides valuable insight when setting objectives for the year ahead. This is the starting point for setting targets for the year ahead.

A robust budget provides a financial roadmap for the year ahead. It should reflect your business objectives while incorporating realistic assumptions around revenue, costs, planned investment and tax liabilities.

It can identify periods of pressure and help ensure sufficient funds are available for operations, investment plans and tax payments. This is also a chance to review funding requirements against planned expenditure. Even profitable businesses can experience difficulties if cash flow is not managed effectively.

Reviewing profit forecasts before the year-end can help identify whether corporation tax will be payable nine months and one day after the year-end or whether the company will be subject to the Quarterly Instalment Payments (QIPs) regime. Understanding this position in advance can help avoid unexpected cash flow pressures, reduce late payment interest and support more effective budgeting.

For owner-managed businesses, strategic objectives often extend beyond profits and growth. You may also be considering succession plans, bringing family members into the business, incentivising key employees or preparing for a future sale.

Profit extraction should be considered alongside the business's wider objectives and those of its shareholders. You should regularly review whether profits should be extracted and, if so, the most appropriate method for doing so.

This may involve reviewing the balance between salary, dividends, pension contributions and other forms of extraction. Reviewing these arrangements before the accounting year-end can help improve overall tax efficiency while supporting personal cash flow requirements. Changes in rates and allowances may mean that a previous strategy is no longer the most tax efficient. This may also depend on the long-term plans, such as a planned exit event.

You should also review any outstanding loan account balances. Where loans remain unpaid nine months and one day after the company's accounting period end, a corporation tax charge may arise. Even where a loan is repaid within that period, reporting obligations may still apply, making regular reviews essential.

Many business owners know where they want the business to end up, but have not yet developed a structured succession or exit strategy.

Whether you intend to pass the business to family members, or pursue a sale to employees or a third party, planning is critical. Exits often take several years to prepare, and early planning can help maximise value, reduce disruption and improve tax outcomes.

Year-end is an opportunity to review whether your succession strategy and ownership structure still reflect your intentions, and whether action is required to ensure they do.

For businesses focused on long-term succession or growth, year-end is also a useful time to assess whether appropriate incentives are in place for key employees and whether additional arrangements could help retain and motivate staff.

Employee costs

Employer pension contributions generally need to be paid before the accounting period end to secure corporation tax relief in that period. You should therefore ensure contributions are made well in advance. Similarly, a corporation tax deduction may be available in the period in which a bonus is accrued, provided payment is made within nine months of the year-end. Therefore, reviewing your bonus scheme ahead of the year-end is important to allow enough time to process bonuses.  

Expenditure and working capital 

Where commercially appropriate, accelerating qualifying capital expenditure may maximise capital allowances and bring forward tax relief.

A review of debtor balances, work-in-progress, and credit control procedures can also improve working capital management. This process may identify potential bad debts that require provisions or write-offs while helping improve overall cash collection and may be eligible as a taxable deduction for corporation tax purposes.

Loss utilisation

Where losses are available, careful planning can help ensure they are utilised as efficiently as possible.

You should consider whether losses can be carried forward, carried back or surrendered as group relief where applicable. Reviewing options before year-end can help ensure relief is used efficiently.

Innovation incentives

Businesses investing in new products, processes, services or technology may be entitled to claim Research and Development (R&D) tax relief. Many businesses do not realise that projects do not need to be groundbreaking or in specific industries to qualify. Activities involving scientific or technical uncertainty or attempts to achieve advances within a particular field may be eligible, and a year-end review provides the opportunity to identify potentially qualifying projects.

Successful year-end planning is about more than minimising tax liabilities. Whilst this may be advantageous, businesses need to consider the wider commercial impact of planning decisions on all stakeholders. Any planning exercise should therefore include modelling the impact on profitability, cash flow, balance sheet strength and wider commercial objectives. Your year-end planning should include adequate, up-to-date accounting records, payroll records and supporting documentation. Good record keeping reduces compliance risks and makes the preparation of accounts and tax returns more efficient.

Pension contributions

Pension planning should form an important part of any annual tax review. Pension contributions can provide a highly tax-efficient way to extract profits while building long-term personal wealth.

You should also consider the proposed changes that will bring pension assets within the scope of Inheritance Tax (IHT) from April 2027. Given these developments, it is important to review your pension strategy, beneficiary nominations and wider estate planning arrangements to ensure they remain appropriate.

For sole traders and those with fluctuating income levels, it may be beneficial to maximise pension contributions in years where income is taxed at higher rates, enabling greater tax relief.

ISA investments

Individual Savings Accounts ("ISAs") remain a valuable tax-efficient savings and investment vehicle.

If affordable, consideration should be given to fully utilising annual ISA allowances before the tax year ends, as unused allowances cannot generally be carried forward. If you have accumulated surplus funds, ISAs can form an important part of longer-term wealth planning alongside pensions and other investments. From April 2027, the annual limit for investments in cash ISAs will be reduced, so it is worth considering the potential role of Cash ISAs in your long-term planning.

Charitable giving

Charitable donations made under Gift Aid can provide valuable tax relief for higher and additional rate taxpayers.

Where income is expected to fall in future years, it may be beneficial to review the timing of charitable donations to maximise available relief. In some circumstances, Gift Aid donations made before a tax return is filed can be carried back to the previous tax year.

If you hold investments standing at a gain, it may be worth reviewing whether gains should be realised to utilise your annual exempt amount as part of your wider investment strategy.

Equally, where investments have reduced in value, realising losses may create capital losses that can be offset against current or future gains.

As the end of the tax year approaches, it's an opportune moment to review your gifting strategy. You can take advantage of the IHT annual exemption of £3,000, and you may also carry forward any unused exemption from the previous tax year.

This is a good time for reviewing your overall IHT planning. For example, in the process of compiling your income information for tax return preparation, consider the benefits and feasibility of make regular gifts out of surplus income as part of your succession strategy which may be immediately exempt from IHT if the relevant conditions (such as having sufficient surplus income). If you are considering larger gifts, be mindful of their timing (including the requirement to survive 7 years for them to fall outside your estate) and ensure they align with your overarching financial objectives.

Where gifts are given, maintaining appropriate records is crucial, as they may be required as evidence at a later stage.

If you expect your taxable income to be lower than last year's, filing your tax return early may help you reduce future payments on your account and improve cash flow. This is particularly relevant before the second payment on account becomes due on 31 July. Care should be taken to ensure any reduction is reasonable, as interest may be charged on underpaid tax.