Tax planning isn’t just for large companies with finance teams. For small businesses, it can be the difference between staying in control or facing surprise tax bills and cash flow headaches.
In simple terms, tax planning is about organising your finances carefully so you don’t pay more tax than you need to. With the right strategies in place, you can free up cash, reduce stress, and plan for the future confidently. Even small changes to how you plan your taxes can lead to big savings.
What is Tax Planning?
Tax planning means looking ahead and making decisions that reduce your tax bill without stepping outside the law. This is completely different from tax evasion or aggressive tax avoidance; this is about staying compliant while making sure your business isn’t overpaying.
It’s also part of a bigger picture. In the same way you would manage your budget or forecast sales, tax planning is a key part of running a financially healthy business.
Why Tax Planning Matters for Small Businesses
Without a proper plan, small businesses often run into the same problems:
- Unexpected tax bills that affect cash flow
- Penalties for missing deadlines
- Missed opportunities to claim allowable expenses
With a bit of forward thinking, these issues can be avoided. Good tax planning helps you stay on top of obligations, keep more of your profit, and build a clearer strategy for growth.
Common Tax Planning Strategies
1. Choose the Right Business Structure
First things first, are you a sole trader, limited company, or LLP? Your structure affects how you’re taxed, so it’s worth reviewing. For example, running a limited company lets you take dividends as well as a salary, which can potentially lower your overall tax bill.
2. Claim All Allowable Expenses
Every business cost you claim reduces your taxable profit. As well as the obvious things like software or stationery, don’t forget less obvious things such as working from home costs, mileage, or training. You may be able to claim for bonus payments post year end, if there is a clear link to the current year in terms of an obligation to pay, but note that pension contributions must be cleared through the bank in order to be deductible.These are expenses that can add up quickly, or be forgotten about!
3. Pick the Best Accounting Method
Small businesses can choose between traditional and cash basis accounting. Traditional (or accrual) accounting is where income and expenses are recorded when they’re invoiced or billed, and cash basis accounting only records income and expenses when money actually changes hands. Cash basis accounting is simpler and helps you avoid paying tax on money you haven’t received yet, which is ideal if you’re dealing with late-paying clients.
4. Use Your Tax-Free Allowances
Make sure you’re taking advantage of the personal allowance, dividend allowance, and the Annual Investment Allowance. These are three key tax breaks that can significantly reduce how much tax you owe if used properly.
Personal Allowance is the amount of income you can earn each year before you start paying Income Tax (currently £12,570 for most people). If you’re not using all of it (by paying yourself too little salary for example), you might be missing a tax-saving opportunity.
Dividend Allowance. If you own a limited company and take dividends (a portion of your profits that you have decided to give out to shareholders), the first portion (currently £500 for the 2025/26 tax year) is tax-free. Using a combination of salary and dividends wisely can reduce your overall tax bill.
Annual Investment Allowance (AIA) allows businesses to deduct the full value of qualifying equipment or machinery (up to £1 million) from their profits before tax. If you’re planning to invest in your business, then getting the timing right can maximise this allowance.
Used together, these allowances can make a big difference to your tax position, making more money for your business.
5. Think About VAT Registration
You must register for VAT if your turnover exceeds £90,000, but registering voluntarily can sometimes benefit smaller businesses, especially if you deal with VAT-registered clients. It may be worth researching the Flat Rate Scheme, a way of paying VAT where you can pay a fixed percentage of your annual turnover.
6. Time Invoices and Purchases
If your year-end is approaching, bringing forward planned expenses or potentially delaying income (where this aligns with accounting standards) by a few days can shift your tax liability into a different year, which then legally reduces what you owe.
7. Make Use of Pensions and Dividends
If you run a limited company, combining a small salary with dividends is often more tax-efficient. You can also make employer pension contributions directly from the business, which can lower your Corporation Tax bill.
Tax Deadlines to Keep in Mind
Staying organised with deadlines helps avoid penalties and interest. Key dates include:
- 31 January – Self Assessment filing and payment
- 9 months after year-end – Corporation Tax due
- Quarterly – VAT returns, if registered
- Monthly or quarterly – Payroll and PAYE submissions
When to Get Help from an Accountant
Tax rules change, and small businesses can expand quickly and become more complex. If you’re growing, hiring staff, earning from multiple sources, or just feel out of your depth, then it’s time to get advice.
A good accountant won’t just help with the paperwork. They’ll help you look ahead, spot opportunities, and make smarter decisions.
Tools and Resources to Get Started
To help you stay organised and make tax planning easier, here are some useful tools.
Accounting Software
Xero, QuickBooks, and FreeAgent are easy-to-use tools that simplify invoicing, expense tracking, and tax management.
Official HMRC Guidance
You can find up-to-date information on tax rules, allowances, deadlines, and expenses on HMRC Small and Medium Business Hub.
Help from us
Our blog is a treasure trove of practical articles on common accounting mistakes, business structures, and smart tax planning. Here are three articles that you may find useful:
Do You Need an Accountant for a Small Business?
Understanding Capital Allowances: Maximise Tax Relief on Business Assets
A Complete Guide to Dividend Vouchers
Final Thoughts
Tax planning isn’t about bending the rules or finding loopholes, it’s about staying organised, staying compliant, and making the most of what is available to you. With a bit of forward planning and the right support, you can avoid surprises, save money and feel more confident about the future of your business.
Need Help Creating Your Tax Plan? Let’s Talk.
At CRM Accountants, we work with small businesses across the UK to make tax less stressful and more straightforward. Whether you’re just starting out or trying to grow, we’ll help you stay in control of your finances with practical, down-to-earth advice.
From building a simple tax plan to improving your cash flow and understanding what you can claim, we’re here to support you at every step.
If you’d like advice on tax planning, you can count on CRM Accountants. Call us today on 01865 379272 or fill out our contact form to schedule a consultation.
