Company Year-End Tax Planning Checklist
The most expensive Corporation Tax mistake I see is not a clever one. It is a director who takes £12,400 out of the company over the year, labels none of it, and discovers at the year-end that the company now owes HMRC £4,433.
No fraud. No scheme. Just a lot of small, ordinary decisions made without a note on any of them.
That is the pattern behind most of the problems I help limited company directors fix across Tunbridge Wells, Tonbridge and Sevenoaks. The errors are rarely dramatic. They are habits: a missing receipt, a purchase made a week too late, a date misremembered by a few days. Each one is simple to avoid, and each one costs something to fix.
This guide sets out fifteen of them, grouped under five headings: record keeping, expenses, dividends, capital expenditure and deadlines. For each, I explain what goes wrong, what it costs, and what to do instead. At the end, I pull the fixes together into a short routine you can start this month.
Good records are the foundation of every Corporation Tax calculation. When they are poor, everything built on them is shaky. Three mistakes come up again and again.
This is the one at the top of my list. A director pays for the weekly shop with the company debit card. A family holiday goes on the business account. A personal transfer is made "just for now". Each payment is small. Together, they build an overdrawn director's loan account.
Money you take from the company that isn't salary, a properly declared dividend or an expense repayment is treated as a loan to you. If that loan is still outstanding nine months and one day after the year-end, the company must pay a section 455 charge. For loans made on or after 6 April 2026, the rate is 35.75%. On £12,400, that is £4,433. The tax is refundable once the loan is cleared, but it ties up cash for a year or more.
A Tonbridge plumber once showed me his company bank statement for the year. About one payment in five was personal. He wasn't being careless with money. He simply didn't realise that the company's account and his own were, in the eyes of the law, different things.
What to do instead: Use a separate business bank account, and pay yourself on a schedule. Our guide to separate bank accounts explains how.
HMRC expects you to keep records that support every figure in your return. For a limited company, that means at least six years from the end of the accounting period. An expense you can't evidence is an expense you may lose in an enquiry.
I worked with a Sevenoaks designer whose company had claimed £7,000 of costs in a year, but who could produce paperwork for only half of them. The other half had been paid with a card that had since been replaced, and the receipts had been thrown away. We recreated what we could from bank records and supplier statements. It took weeks, and some of the claim was lost.
What to do instead: Photograph every receipt the day you get it and attach it to the transaction in your accounting software. A digital copy is generally acceptable. Keep everything for six years.
Many small business owners leave their books until the accountant asks for them. By then, memories have faded, invoices have gone missing and nobody can remember what a payment of £312 in August was for.
Late bookkeeping doesn't only cost time. It means you can't plan, because you don't know where your profit stands. It means errors go unnoticed. And it delays your accounts, which delays the whole Corporation Tax process.
What to do instead: Reconcile your bank account monthly. Half an hour is usually enough. If you'd rather not do it yourself, ask us about bookkeeping support.
Claiming the right expenses reduces your Corporation Tax. Claiming the wrong ones increases the risk of an HMRC enquiry. Both errors are common.
It is the classic. A lunch with a prospect, tickets to a match, drinks after a meeting: none of it is deductible for Corporation Tax, even if it led directly to a contract. Any VAT on it can't be reclaimed either.
Staff entertainment is treated differently. An annual staff party, for example, can be exempt if it costs no more than £150 per head, including VAT, and is open to all staff. But client entertainment generally never qualifies.
If you include £2,400 of client entertainment in your deductible costs, and the company's profit sits in the marginal relief band, HMRC's correction adds about £636 to the tax bill, plus interest, and possibly a penalty for the error.
What to do instead: Record client entertainment separately in your books so your accountant can exclude it cleanly. You still run the business as you wish. You simply don't claim it.
Phones, broadband, home heating, cars and laptops are often used for both business and private purposes. Only the business share is deductible. A company that deducts a family's entire broadband bill, or a car used for weekend trips, is claiming too much.
There are some generous rules that help. One mobile phone contract in the company's name isn't a taxable benefit, even if you use it privately. The company can pay a director £6 a week for working from home without receipts. But those are specific exemptions. They don't extend to everything.
What to do instead: Work out a fair business proportion, write down how you did it and apply it consistently. For cars and other major items, ask us before you buy.
The reverse mistake is just as expensive. Many directors simply forget to claim what they're entitled to.
A Tunbridge Wells consultant who worked from home for three years had never claimed a penny of the £6 a week. It would have come to over £900 in tax-free payments from the company, and a deduction for the company on top.
What to do instead: Ask your accountant for a list of the claims available to you, and review it each year. Our guides to company and director expenses cover the details.
Dividends are the natural way for a small company's profits to reach its owners. They also come with rules that are frequently misunderstood.
A dividend can only be paid from distributable profits, meaning profits that remain after tax and previous distributions. If a company pays one without them, it is an unlawful dividend. The money can be reclaimed from the shareholder if the company later gets into difficulty.
It happens more than you might think. A director sees £30,000 in the bank, forgets that a Corporation Tax bill, a VAT payment and the wages are all due, and declares a large dividend. The cash is there, but the profit isn't.
What to do instead: Check the company's distributable reserves before every dividend. Cash in the bank is not the same thing as profit.
Each dividend needs a board minute and a dividend voucher, even if you are the only director and the only shareholder. It feels silly to write minutes for a meeting of one. But the paperwork is what proves that a payment was a dividend rather than a loan or disguised salary.
HMRC does challenge undocumented payments, and I've seen it. A client in Sevenoaks had paid himself £40,000 across the year in irregular transfers, labelled "dividend" in the books but supported by no documents at all. Reconstructing the paperwork wasn't impossible, but it was awkward, and it left questions about the dates.
What to do instead: Create the minute and voucher on the day you declare each dividend. Your accountant can provide templates, or prepare them for you.
The best split between salary and dividends depends on tax rates, and those change. Since 6 April 2026, dividend tax has been 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above £125,140, with a £500 allowance. Employer's National Insurance is 15% above £5,000. A set-up that was right two or three years ago can now cost more than it should.
For many single-director companies, a salary of £12,570, with the rest taken as dividends, is still a sensible approach. But the right answer depends on your other income, your profit and whether you employ anyone else. Taking everything as salary is rarely the cheapest route, because it attracts employer's National Insurance and income tax that a well-planned split can reduce.
What to do instead: Review the arrangement at least once a year, ideally a couple of months before the year-end. Our guide on salary versus dividends works through the numbers.
When a company buys equipment, vehicles or machinery, the tax treatment is different from day-to-day costs. Getting it wrong can cost real money.
A laptop, a van or a machine isn't deducted as an ordinary expense. It is a capital item, and the company claims capital allowances. The result is often the same or better, but the route is different, and the paperwork needs to match. Putting a van through as "motor expenses" in the accounts leads to errors in the tax computation, and it can cause HMRC to question other entries.
The reverse also happens. Routine repairs are revenue costs, deducted immediately. But when a repair is really an improvement, such as replacing a whole roof, it may be capital. The distinction matters.
What to do instead: Record purchases of equipment in a fixed asset register, with the date, cost and supplier. Tell your accountant about anything over a few hundred pounds.
Capital allowances are given in the period in which you buy the asset. The Annual Investment Allowance lets most companies deduct up to £1 million of qualifying spending in the year it's incurred, and full expensing gives a 100% deduction on new main-rate plant and machinery. A 40% first-year allowance has also been available from 1 January 2026 for some additional assets, while the main pool writing-down allowance fell from 18% to 14% for companies from 1 April 2026.
The practical point is timing. A builder from Maidstone bought a £30,000 van a few days before his year-end and received the full allowance for that year. If he had bought it a week later, the relief would have moved to the following year. If his profit sat in the marginal relief band, where the effective rate on extra profit is 26.5%, the tax saved on £30,000 would be £7,950, which is a hefty sum to delay.
What to do instead: Include planned purchases in your forecast three or four months before the year-end. If you were going to buy the asset anyway, check the year-end first. Never buy something you don't need just to save tax. Even with relief, you still pay the rest of the cost yourself.
Cars sit outside the Annual Investment Allowance. They have their own capital allowance rules, which have changed several times for electric vehicles, and the director is taxed on private use as a benefit in kind. For a zero-emission car, the benefit-in-kind rate is 4% of the list price in 2026–27, rising to 5% next year and more after that.
A director who buys a car through the company assuming it will be "fully deductible" is often disappointed. Laptops and phones used by family members, or a van used for weekend trips, can also create benefit-in-kind charges.
What to do instead: Speak to us before you buy a car through the company. For mixed-use assets, agree a private use proportion and record it.
Corporation Tax has several dates, and they don't match. Most late payments and penalties come from confusion about which is which.
Corporation Tax is due nine months and one day after the end of the accounting period. The Company Tax Return is due twelve months after the period ends. The annual accounts are due at Companies House nine months after the period ends.
For a company with a 31 March 2027 year-end, that means accounts by 31 December 2027, tax by 1 January 2028 and the return by 31 March 2028. Many directors assume the tax is due when the return is filed, and are surprised by interest on a payment they think isn't due yet.
What to do instead: Put all three dates in your diary as soon as your year-end is set, with a reminder four weeks before each. I've covered them in detail in our guide to Corporation Tax deadlines.
Because the tax falls due so long after the year-end, it's very easy to spend the money first. A Tonbridge consultant arrived at our office with a tax bill of £14,000 and an almost empty bank account. His company had had a strong year, and he had taken a good salary and dividends, but nothing had been put aside.
What to do instead: Move around 20% to 25% of your monthly profit into a separate savings account as you go. When the bill arrives, the money is there.
HMRC and Companies House send letters, and some directors put them in a drawer. A late Company Tax Return costs £200 for being one day late and another £200 at three months. After six months, HMRC estimates the tax and adds a 10% penalty. Late accounts at Companies House attract penalties of £150 to £1,500 for a private company, which double if the accounts are late two years in a row. Late tax carries interest, at 7.75% from 9 January 2026, though the rate moves with the Bank of England base rate.
Even a dormant company can receive a notice to deliver a return, and ignoring it is expensive. If you think the company has no obligation, tell HMRC in writing rather than leaving the letter unopened.
What to do instead: Open every letter. Make sure your accountant is authorised as your agent so that they receive copies. Check that your registered address at Companies House and HMRC is current.
Looking down the list, three themes emerge. Most mistakes come from poor records, poor timing, or not asking. All three have the same cure: a regular routine, and a regular conversation.
Once a month, set aside half an hour. Reconcile the bank account. Label every payment. Attach receipts. Record any personal transactions as a director's loan, and check the balance. Update your mileage log and your fixed asset register. Move your tax savings into the separate account.
Every three months, look at your profit and loss account and compare it with your forecast. If the numbers have changed, tell your accountant. Planning works best when it's based on current information.
Three or four months before your year-end, sit down with your accountant to review your forecast profit, your pay, your planned purchases, your pension contributions and your expense claims. This is where you catch the timing mistakes, and where most of the savings are made.
Cloud accounting software, bank feeds and receipt-scanning apps remove much of the effort. A separate business bank account, a company card for company spending only, and standing orders for your own pay remove most of the temptation to mix things up.
I'll say this plainly. Nearly every mistake on this list is cheaper to prevent than to fix. A five-minute call before you buy a car, pay a dividend or change your year-end can save a great deal of money.
Let me put numbers on this. Take a company with a 31 March 2027 year-end and Corporation Tax of £15,780.50.
The director pays the tax 60 days late, which at 7.75% costs about £201 in interest. The return is filed four months late, which brings £400 in penalties. And £2,400 of client entertainment was included in the deductible costs, which adds about £636 of extra tax once corrected. That is around £1,237 of avoidable cost, before any further interest or penalty for the incorrect claim.
On top of that, the director's loan account is overdrawn by £12,400 at the year-end. If it isn't cleared by 1 January 2028, the company pays £4,433 of section 455 tax. That's refundable once the loan is repaid, but it ties up cash in the meantime.
None of these mistakes is dramatic. Together, they cost more than a year of sensible accountancy support.
Quick answer: The most common Corporation Tax mistakes fall into five areas: poor record keeping, wrong expense claims, careless dividends, mishandled capital purchases and missed deadlines. Nearly all can be prevented with separate bank accounts, monthly bookkeeping, an annual planning meeting and a diary of key dates.
What this means for a company director: You are responsible for your company's tax affairs, even if an accountant does the work. A few regular habits, and an early conversation before major decisions, will avoid most of the problems described here.
Example: A company with a Corporation Tax bill of £15,780.50 pays 60 days late (£201 interest), files its return four months late (£400 in penalties) and wrongly claims £2,400 of client entertainment (£636 of extra tax). That is about £1,237 of avoidable cost. An overdrawn director's loan account of £12,400 adds a refundable section 455 charge of £4,433.
Common mistakes: See the fifteen above. The three that cost the most are mixing business and personal money, missing the year-end for planning and confusing the payment and filing dates.
When should you speak to an accountant? Before the year-end, to plan. Before buying a car, a large asset or paying a significant dividend. When your director's loan account is overdrawn. And as soon as you receive a letter from HMRC or Companies House that you don't understand.
If you recognised yourself in more than one of the mistakes above, you are in good company. Almost every director I meet has made at least a few. The difference is whether you catch them early. At Peter Hodgson & Co, we work with small businesses and company directors across Tunbridge Wells, Tonbridge, Sevenoaks and the wider Kent and South East area, and we help you put the habits in place to avoid them.
If you'd like a review of your Corporation Tax position, or you'd like help tidying up records that have drifted, we'd be glad to hear from you. You can complete the "Contact Us" form on our website, call us on 01892 515 733, or send us an email at info@peterhodgson.co.uk.
Disclaimer:
The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.
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