As the end of the tax year approaches on 5 April 2025, businesses must take proactive steps to reduce their tax liabilities, maximise available reliefs, and avoid unnecessary financial strain.
With changes to tax rates, allowances, and deductions, early planning is crucial to ensure your business takes full advantage of available opportunities.
This guide outlines 10 actionable tax strategies that businesses could implement before the year-end to optimise tax efficiency and maintain compliance with HMRC regulations.
(Read Time: Approx. 7 minutes)
Topics Discussed:
- Key tax-saving strategies to implement before April 2025.
- Recent changes in tax rules and how businesses can benefit from them.
1. Maximise Pension Contributions
The annual pension contribution allowance remains at £60,000 for the 2024/25 tax year.
Additionally, businesses can carry forward unused allowances from the previous three tax years, meaning there is scope to make larger contributions if allowances from 2021/22, 2022/23, or 2023/24 were not fully utilised.
Pension contributions continue to be fully deductible from corporation tax, reducing taxable profits.
Higher-rate taxpayers also benefit from relief at their highest rate of income tax.
What to Do Before 5 April 2025?
Businesses should maximise employer contributions into pension schemes before the tax year ends to reduce corporation tax liabilities.
Directors of limited companies should consider making personal pension contributions through their company, as this is more tax-efficient than withdrawing funds via salary or dividends.
If there is unused pension allowance from the past three years, now is the time to top up contributions and ensure the funds are invested tax-efficiently.
Contributions must be paid and cleared before 5 April 2025 to count towards the current tax year.
2. Take Advantage of the Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) remains at £1 million for the 2024/25 tax year.
This allowance allows businesses to deduct the full cost of qualifying capital purchases, such as machinery, equipment, commercial vehicles, and IT infrastructure, from their taxable profits.
What to Do Before 5 April 2025?
If your business is planning to purchase equipment or upgrade infrastructure, ensure that qualifying purchases are made and in use before the tax year ends.
Delaying purchases into the new tax year could mean waiting an additional 12 months for tax relief.
For businesses planning large capital investments, it’s advisable to work with an accountant to determine whether using the AIA or the full expensing scheme (see below) is more beneficial.
3. Use Full Expensing for Capital Expenditure
Introduced in 2023, full expensing allows businesses to immediately deduct 100% of the cost of new, qualifying plant and machinery from their taxable profits.
Unlike the AIA, there is no upper limit on the amount that can be claimed.
However, this scheme only applies to new (not second-hand) assets and only for incorporated businesses.
What to Do Before 5 April 2025?
Businesses should plan major investments before the tax year-end to take full advantage of this relief.
If purchasing manufacturing equipment, IT systems, or commercial vehicles, ensure that assets are acquired and operational before 5 April 2025 to qualify for immediate tax deductions.
For businesses with high levels of capital expenditure, combining full expensing with AIA can provide significant tax savings.
Consulting a tax professional is recommended to determine the best approach.
4. Review and Optimise Director’s Loan Accounts
If a director’s loan account is overdrawn at the year-end, the company may face a Section 455 tax charge of 33.75% if the loan is not repaid within nine months of the company’s year-end.
This charge is reclaimable, but it ties up company cash flow unnecessarily.
What to Do Before 5 April 2025?
To avoid tax penalties, directors should repay outstanding loans before the year-end.
If repayment isn’t feasible, consider declaring dividends or taking a salary to clear the balance.
However, doing so could result in additional income tax liabilities, so it’s essential to plan this carefully with an accountant.
5. Bring Forward Deductible Expenses
Bringing forward business expenses into the current tax year can help reduce taxable profits and lower overall tax liabilities.
What to Do Before 5 April 2025?
Businesses should prepay expenses such as rent, professional fees, insurance, and marketing costs before the tax year-end.
If essential maintenance, repairs, or staff training is required, it may be beneficial to complete these expenses in the current tax year rather than deferring them.
Software subscriptions and office supplies can also be brought forward to ensure deductions are maximised.
6. Consider Salary Sacrifice Schemes
Salary sacrifice arrangements allow employees to exchange part of their salary for non-cash benefits such as additional pension contributions, electric car leasing, and cycle-to-work schemes.
These schemes provide National Insurance savings for both the employer and employees.
What to Do Before 5 April 2025?
Employers should review existing salary sacrifice schemes and consider introducing new options to reduce payroll tax costs.
Employees can benefit from increased pension contributions without extra tax burdens, while businesses can lower their overall NIC liability.
Setting up a scheme before the year-end ensures maximum tax efficiency going into the next tax year.
7. Plan Capital Gains Tax (CGT) Efficiently
The CGT annual exemption has been reduced to just £3,000 for the 2024/25 tax year, meaning more disposals will be subject to tax.
What to Do Before 5 April 2025?
Employers should review existing salary sacrifice schemes and consider introducing new options to reduce payroll tax costs.
Employees can benefit from increased pension contributions without extra tax burdens, while businesses can lower their overall NIC liability.
Setting up a scheme before the year-end ensures maximum tax efficiency going into the next tax year.
8. Maximise Research & Development (R&D) Tax Credits
HMRC has tightened compliance requirements for R&D tax relief, requiring more detailed record-keeping and justification of qualifying activities.
The additional deduction for SMEs is now 86%, and the R&D Expenditure Credit (RDEC) is set at 20%.
What to Do Before 5 April 2025?
Businesses investing in product development, process improvements, or innovative technology should ensure all eligible R&D expenses are claimed.
Comprehensive documentation of R&D activities is now essential, and companies that have never previously claimed should review their eligibility.
Submitting claims before the deadline allows businesses to benefit from cash rebates or tax reductions sooner.
9. Time Dividend Payments Carefully
The tax-free dividend allowance has been cut to just £500, meaning dividend tax planning is more important than ever.
What to Do Before 5 April 2025?
Business owners should review the balance between salary and dividends to minimise tax exposure.
Where possible, declaring dividends before the tax year ends allows shareholders to take advantage of the 2024/25 allowances.
For those with family members who hold shares, splitting dividends can help reduce overall tax burdens.
10. Review Business Structure for Tax Efficiency
With corporation tax at 25% for profits over £250,000, businesses must assess whether their current structure is tax-efficient.
What to Do Before 5 April 2025?
Business owners should review corporate structures, partnerships, and investment holdings to determine whether changes could reduce tax liabilities.
For succession planning, Family Investment Companies (FICs) and trusts may provide long-term tax benefits.
Speaking to a tax advisor before the year-end ensures the right strategy is in place.
Summary
Tax planning before 5 April 2025 is essential for businesses looking to reduce liabilities, optimise reliefs, and maintain compliance.
It’s also important to stay ahead of any changes coming to tax rates and reliefs for businesses.
Taking proactive steps now ensures businesses avoid last-minute surprises and make the most of available opportunities.
For expert tax advice tailored to your business, contact Tax Expert today to ensure your strategy is fully optimised!
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Kind regards,
Ilyas Patel