Limited Company Year-End Tax Planning Guide 2026/27

Why year-end matters more for companies than for individuals

For most individuals, the tax year is fixed at 5 April and there is limited ability to accelerate expenses or defer income to optimise the position. For a limited company, the accounting year-end is the point at which taxable profit crystallises, and the director has genuine flexibility in the weeks beforehand to influence that figure through legitimate planning.

Director salary, company pension contributions, timing of business purchases, prepayment of allowable expenses and the treatment of director loan accounts all affect the year-end taxable profit figure. Doing nothing by default and accepting whatever profit falls out of the accounts is the most common approach, and typically the most expensive. Planning before year-end typically saves several times more than any fee paid for the advice.

The most critical point: many year-end planning actions must happen before the year-end date, not after. A pension contribution made on 1 April for a 31 March year-end falls in the next period. A company pension contribution dated 31 March falls in the current period and reduces this year's taxable profit. Timing matters by a day.

Decision one: company pension contribution

The most powerful year-end lever for most companies with profits in the marginal relief band is a company pension contribution. Every pound contributed before year-end reduces taxable profit, saving 19–26.5% in corporation tax with zero employer or employee NI cost.

The size of the optimal contribution depends on: the company's current estimated taxable profit; the applicable corporation tax rate or marginal rate; the director's pension annual allowance (£60,000 for 2026/27, plus any carried-forward allowance); and whether the company has the cash to make the contribution.

For a company currently sitting at £90,000 in taxable profit (marginal relief band), a £40,000 pension contribution (with the director having annual allowance available) would reduce taxable profit to £50,000, exactly at the small profits threshold. Corporation tax saving: from approximately £19,613 (on £90,000 at marginal relief) to £9,500 (on £50,000 at 19%) = £10,113. A £40,000 pension contribution saves over £10,000 in corporation tax and builds £40,000 of pension wealth. The effective corporation tax saving rate on the contribution: approximately 25.3%.

Decision two: director salary for the year

If the director's salary for the year has not been set, or if there is flexibility to increase it before year-end, reviewing the optimal salary level is worthwhile. The two standard benchmarks are £9,100 (no employer NI trigger above the secondary threshold of £5,000, keeping employer NI at 15% × £4,100 = £615) and £12,570 (full personal allowance, employer NI of approximately £1,139).

Wait, we need to be precise on the 2026/27 thresholds. The employer NI secondary threshold is £5,000 in 2026/27. So a salary of £9,100 triggers employer NI on £4,100 at 15% = £615. A salary of £12,570 triggers employer NI on £7,570 at 15% = £1,139. Neither amount triggers employee NI (employee NI only applies above £12,570).

For a company in the marginal relief band, increasing the salary to £12,570 saves approximately 26.5% × £1,130 net deduction = £299 in extra corporation tax savings versus £9,100 salary. The employer NI cost of the increase (£1,139 − £615 = £524) partly offsets this. Net effect at marginal rate: approximately £299 − £524 = net cost of £225. Slightly negative, but the higher salary provides stronger income evidence for mortgage applications and contributes more to State Pension qualifying years.

Decision three: timing of major expenses

If a major business purchase is planned, new computer equipment, professional indemnity insurance renewal, accountancy fees, software licences, or significant professional advice, bringing it forward into the current accounting period may be worthwhile if taxable profit is currently in the marginal relief band.

An expense incurred in the final month of the accounting period (e.g. paid in March for a March year-end) falls in the current period and reduces the current year's taxable profit. The same expense in April falls in the following period. At the 26.5% marginal rate, a £5,000 expense brought forward saves approximately £1,325 in corporation tax in the current year (with the trade-off being that the saving in the following year, when marginal relief may or may not apply, is forgone).

Be careful about artificial prepayments. HMRC requires expenses to be incurred for the purposes of the trade in the period. Prepaying a contract that will deliver services primarily in the following period may not produce a current-period deduction. Genuine services or goods received in the current period are clearly allowable.

Decision four: dividend declarations

Dividends declared before year-end reduce the company's distributable reserves at year-end. This is relevant for: ensuring the year-end balance sheet shows the correct retained profit position; managing the director's personal income in the current tax year versus the next; and ensuring dividends are formally voted and documented before the year closes.

A dividend declared on 31 March falls in the 2026/27 tax year for the director's personal Self Assessment purposes. A dividend declared on 1 April falls in 2027/28. If the director's total personal income in 2026/27 is already approaching the higher rate threshold (£50,270), deferring additional dividend declarations to April, the new tax year, gives the director a fresh personal allowance and basic rate band to absorb the next tranche.

For directors with income well below the basic rate threshold, declaring a dividend before year-end uses the current year's dividend allowance (£500), a modest but real benefit. For directors already near the threshold, pushing dividends into the new tax year is the primary benefit of the timing decision.

Decision five: overdrawn director loan account

If the director has been taking cash from the company throughout the year without formally declaring salary or dividends, the director's loan account (DLA) may be overdrawn at year-end. An overdrawn DLA at the accounting year-end triggers the S455 corporation tax charge at 33.75% of the outstanding balance, if not repaid within nine months.

The year-end is the time to check the DLA position and, if overdrawn, either: declare a dividend sufficient to clear the balance (if distributable reserves allow); ensure the director can repay it from personal funds within the nine-month window; or plan the formal declaration in the accounts to minimise the S455 exposure.

The S455 charge is refundable but the refund takes nine months after the repayment year-end. An unexpected S455 charge can create significant cashflow pressure. Reviewing the DLA position before year-end, and clearing it before the year closes where possible, is considerably easier than managing it after.

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