Tax Planning Guide For 2025/26

Welcome to this comprehensive tax planning guide for the 2025/26 tax year (6 April 2025 to 5 April 2026). Created by Harkia Chartered Accountants, this resource empowers UK businesses, sole traders, and limited company directors with actionable tax planning strategies for 2025/26. If you’re searching for tax planning for sole traders, tax planning for limited companies, or general UK tax strategies for businesses, you’ve come to the right place.

Effective tax planning for 2025/26 can help reduce liabilities, improve cash flow, and support business growth. Whether you’re a London-based SME in construction or a freelancer, these tips are based on current HMRC guidelines. Note: Tax rules are complex. Always seek professional advice from ICAEW-chartered accountants like us at Harkia to tailor strategies to your needs. Book a free consultation by filling out this form. 

In this guide, we cover tax planning tips for sole traders, limited companies, and all businesses. By applying these, you can maximise allowances, claim reliefs, and minimise tax payments.

Key Tax Rates and Allowances for 2025/26

Before exploring tax planning strategies for 2025/26, review these essential UK tax rates. They apply across the UK, including London.

Category	Details	Rate/Threshold
Personal Allowance	Tax-free income threshold (reduces by £1 for every £2 over £100,000 income)	£12,570
Income Tax Bands (non-savings, non-dividend income)	Basic rate Higher rate Additional rate	20% (£12,571–£50,270) 40% (£50,271–£125,140) 45% (over £125,140)
National Insurance (Self-Employed – Class 4)	On profits	6% (£12,570–£50,270) 2% (over £50,270)
Corporation Tax (Limited Companies)	Small profits rate Main rate Marginal relief band	19% (£0–£50,000) 25% (over £250,000) Tapered (£50,001–£250,000)
VAT Registration Threshold	Taxable turnover in any 12-month period	£90,000
Annual Investment Allowance (AIA)	For qualifying capital expenditure	Up to £1,000,000
Pension Annual Allowance	Maximum tax-relieved contributions	£60,000 (tapered for high earners)
R&D Tax Relief	Research & Development Expenditure Credit (RDEC) for most companies Enhanced for R&D-intensive SMEs	20% credit on qualifying spend Up to 27% effective relief

Note: Class 2 National Insurance for self-employed was abolished from April 2024. Sole traders no longer pay this fixed weekly amount.

Tax Planning Tips for Sole Traders in 2025/26

Sole traders pay tax on profits via Income Tax and National Insurance through Self Assessment. Tax planning for sole traders focuses on maximising deductions and allowances, as business and personal finances are linked.

1. Maximise Allowable Expenses: Deduct business costs like office supplies, travel, and marketing from profits. For home offices, use the £6/week flat rate or actual costs. Track with MTD-compliant software—mandatory for sole traders over £30,000 income from April 2026. This tax planning strategy for sole traders can save hundreds in tax.
2. Utilise the Trading Allowance: Earn up to £1,000 side income tax-free. For low-expense businesses, claim this instead of actual costs for simplicity.
3. Claim Capital Allowances: Use AIA to deduct up to £1,000,000 on assets like equipment. For cars, zero-emission vehicles qualify for 100% first-year allowance. Ideal for London sole traders investing in tools.
4. Boost Pension Contributions: Get tax relief at your marginal rate (e.g., 20% means £800 costs £640 net). Up to £60,000 annually reduces taxable income.
5. Monitor VAT Threshold: Register early if nearing £90,000 to reclaim input VAT. The Flat Rate VAT scheme simplifies admin for small sole traders.
6. Consider Switching to a Limited Company: If profits exceed £50,000, incorporation offers lower Corporation Tax and dividends. Calculate with online tools—many London sole traders switch for better tax planning.
7. Plan for National Insurance: Time expenses to stay below bands. Voluntary Class 3 contributions (£17.45/week) protect your state pension.

Tax Planning Tips for Limited Companies in 2025/26

Limited companies pay Corporation Tax on profits. Directors are taxed on salaries/dividends. Tax planning for limited companies offers flexibility for optimisation.

1. Optimise Salary and Dividends Mix: Pay salary up to £12,570 to minimise NI. Extract profits as dividends (tax-free up to £500, then lower rates). Saves 10-15% vs. high salaries.
2. Leverage Corporation Tax Reliefs: Use full expensing for machinery or AIA up to £1m. Claim 20% RDEC for R&D, or 27% for intensive SMEs. Notify HMRC early for first claims.
3. Company Pension Contributions: Deduct up to £60,000 per director from Corporation Tax. No NI—great for London limited companies.
4. Claim Business Expenses and Allowances: Deduct director costs and mileage (45p/mile first 10,000). Low benefit-in-kind for electric cars (2%).
5. Manage Profit Bands for Corporation Tax: Keep under £50,000 for 19% rate via timing or pensions. Plan for tapered relief in £50k-£250k band.
6. VAT Strategies: Register voluntarily for input recovery. Cash accounting delays payments until clients pay—key for London cash flow.
7. Year-End Planning: Accelerate expenses or defer income. Use loss carry-back or group relief if applicable.

General Tax Planning Strategies for All UK Businesses in 2025/26

These apply to sole traders, limited companies, and partnerships:

1. Maintain Robust Record-Keeping: Use digital tools for MTD compliance. Retain records for 6 years to support HMRC enquiries.
2. Invest in R&D and Innovation: Document projects for tax credits. London’s tech hubs make this accessible—get cash refunds even if loss-making.
3. Explore Reliefs and Incentives: Use SEIS/EIS for investments. Claim £5,000 Employment Allowance if hiring.
4. Time Purchases and Sales: Buy assets pre-year-end for allowances. Delay invoicing to manage tax bands.
5. Seek Professional Advice: Work with London accountants for tailored tax planning for 2025/26, especially with budget changes.
6. Stay Updated on Changes: Follow HMRC for updates, like R&D fraud scrutiny.
7. Sustainable Practices: Claim enhanced allowances for energy-efficient investments, supporting London’s net-zero goals.

Final Thoughts on Tax Planning for 2025/26

Applying these tax planning strategies for 2025/26 can help your UK business succeed. From maximising allowances to strategic structuring, proactive steps are essential.

Ready to implement? Contact Harkia Chartered Accountants for a free consultation. Tailor this guide to your needs. Download our checklist or subscribe for updates—let’s make tax work for you!

FAQs on Tax Planning for 2025/26

• What are the best tax planning strategies for UK businesses in 2025/26? Focus on allowances like AIA and R&D relief to reduce liabilities.
• How does tax planning for sole traders differ from limited companies? Sole traders use personal allowances; companies benefit from Corporation Tax reliefs.
• Why hire ICAEW accountants for tax planning? We provide compliant, optimised advice with proven savings.