UK businesses face significant tax obligations each financial year. This makes them look for ways using which they can reduce their tax liabilities. The right tax mitigation strategies can not only help business owners lower their tax burden but also strengthen their financial position. Here, as the leading tax accountants in the UK, we are going to provide an up-to-date overview of business tax changes for the upcoming tax season and outline practical approaches that can help businesses optimise their tax planning while staying compliant.
What Taxes Do UK Businesses Have to Pay?
For the 2025-26 tax year, UK businesses are liable for several key taxes that are mentioned as below:
- Corporation Tax, which is 25% for profits over £250,000
- National Insurance Contributions (NICs) for employees and employers (thresholds and rates updated annually)
- Value Added Tax (VAT) on goods and services if taxable turnover exceeds £90,000 in a 12-month period
- Capital Gains Tax (CGT) on disposal of qualifying business assets (assets that are eligible for relief, most notably Business Asset Disposal Relief)
- Dividend Tax applied to dividends paid out to shareholders
- Business Rates on commercial premises
- Director’s Loan Account Tax in case loan balances are overdrawn and not repaid promptly
Understanding these obligations is essential for UK businesses in order to effectively manage tax reduction in 2025-26.
Overview of Tax Changes for 2025-2026
The new tax season brings several notable changes for businesses, which as listed below:
- Corporation tax remains at 25% for larger profits
- Employer NICs increase to 15%, with the threshold falling to £5,000 for 2025-26
- Capital Gains Tax (CGT) exemption has been slashed to £3,000 for individuals, affecting the tax treatment of business asset disposals effective from 6 April 2025
- Annual Investment Allowance (AIA) remains at £1 million through the new season, allowing for continued 100% deductions on qualifying capital expenditure
- Dividend Allowance is reduced to £500 from 6 April 2025
- Stricter R&D Tax Relief and the introduction of a merged scheme for claims made during the 2025-26 season
- Compliance for salary sacrifice and director’s loan accounts is increasingly important due to legislative updates
Tax Mitigation Strategies for 2025-26
Below we have mentioned some effective tax mitigation strategies that businesses can adopt during the next tax season:
1. Maximise Pension Contributions
For 2025-26, the pension contribution annual allowance remains at £60,000. Businesses and individuals can also carry forward unused allowances from the previous three years (2022/23, 2023/24, or 2024/25 tax years) for enhanced contributions. These contributions are fully deductible for corporation tax in 2025-26, directly reducing the taxable profits and benefiting higher-rate taxpayers at up to 45% relief.
2. Take Advantage of the Annual Investment Allowance (AIA)
The AIA cap of £1 million applies for the 2025-26 season, which enables immediate 100% tax relief on eligible capital purchases made from 6 April 2025 to 5 April 2026. To receive the deduction during the current tax year, businesses need to make sure that the planned investments in equipment, vehicles (not cars), or technology infrastructure are within the specified dates.
3. Use Full Expensing for Capital Expenditure
Full expensing allows incorporated businesses to claim 100% first-year relief on qualifying new (not second-hand) plant and machinery investments, with no upper limit. In order to become eligible for this relief businesses must make sure that the capital expenditure occurs between 6 April 2025 and 5 April 2026.
4. Review and Optimise Director’s Loan Accounts
As of 2025-26, overdrawn director’s loan accounts not settled within nine months after the company’s year-end will incur a Section 455 tax charge of 33.75%. Though this charge is reclaimable once repaid but it temporarily impacts cash flow. To avoid unnecessary tax outflows, businesses need to repay loans as soon as possible and also structure withdrawals carefully.
5. Bring Forward Deductible Expenses
Forward planning can optimise tax positions for the 2025-26 tax year. Businesses should consider accelerating deductible purchases or payments, such as equipment maintenance, professional subscriptions, or repairs, before the end of the tax year on 5 April 2026 to maximise this year’s tax relief.
6. Consider Salary Sacrifice Opportunities
Employers and employees can maximise their saving under the National Insurance by sacrificing a portion of the salary to obtain non-cash benefits. Whether it is a pension contribution, leasing an electric vehicle, or cycling to work, substantial deductions can be achieved by careful structuring under new rates and thresholds.
7. Plan Capital Gains Tax (CGT) Efficiently
CGT annual exemption has been decreased to only £3,000 in the tax year 2025/26. This means more disposals are liable for tax. Changes in the threshold demands businesses to carefully plan their disposals to utilise the allowances efficiently.
8. Maximise Research & Development (R&D) Tax Credits
From April 2024, the UK has moved to a merged R&D tax relief scheme. The additional deduction for SMEs is now 86%, and the R&D Expenditure Credit (RDEC) rate is 20%. Despite the tighter compliance requirements by HMRC, this remains a valuable relief for businesses involved in innovation. To maximise this cliam, companies should maintain proper documentation and possess a good understanding of eligibility criteria.
9. Time Dividend Payments Carefully
The tax-free dividend allowance has been reduced to £500. This makes dividend tax planning more important than ever. To optimise tax outcomes for shareholder & directors businesses should consider the timing and amount of dividends. Additionally, they should also consider balancing salary and dividends in light of tax and National Insurance changes to maintain compliance.
10. Review Business Structure for Tax Efficiency
Businesses must review their structures to ensure tax efficiency, considering incorporation status, profit extraction methods, and possible reorganisation. For owner-managed businesses, revisiting the balance between salary and dividends in response to changes in NICs and allowances can deliver meaningful savings.
Conclusion
Proactive tax planning for the 2025-26 season is the most effective way to save money and ensure legal compliance. UK businesses can make use of the strategies mentioned in this blog to stay ahead of obligations and take full advantage of available reliefs. For more tips or to ensure no opportunity for savings is missed, companies should seek expert assistance from experienced tax advisors in the UK.
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