Tax Planning for High-Earning Company Directors
On the day your company's accounting year ends, its profit is fixed. Whatever planning you meant to do, but didn't, is no longer possible. The equipment you were thinking of buying, the pension contribution you meant to make, the bonus you wanted to agree with your team: all of it needed to happen before that date.
I've watched this play out many times. A director comes to see me a fortnight after the year-end, pleased with a strong result and keen to "do something about the tax". And I have to explain that the best moment for that conversation was three months ago. It's never a comfortable meeting.
The good news is that Corporation Tax planning isn't complicated. It's mostly a question of timing, and a handful of regular habits. This guide sets out when planning should start, what to do before the year-end and during the year, and the areas that repay a closer look: pay, capital spending and pensions. I'll use plain English, real-world examples from companies across Tunbridge Wells, Tonbridge and Sevenoaks, and a worked example with the numbers.
Let's be clear about what we mean. Tax planning is organising your company's affairs, within the law, so that you pay the tax you owe and no more. It is not about hiding anything. It's about making sure you claim every relief you're entitled to, take decisions at the right time and don't stumble into avoidable bills.
For 2026–27, Corporation Tax is 19% on profits up to £50,000, 25% above £250,000, and a sliding scale between the two, with an effective rate of 26.5% on each extra pound in that band. If your company's profit sits anywhere near those lines, planning pays. But it matters even for smaller businesses, because the planning habits that save tax are mostly the same habits that make a business easier to run: up-to-date books, a clear forecast and a regular conversation with your accountant.
Planning is also not the same as spending. A pound spent saves you 19p to 26.5p of tax, and costs you the rest. The aim is to make sensible decisions with the tax effect in view, not to buy things you don't need.
The honest answer is: at the start of the accounting period. Not in the last month. At the beginning, you can set a rough budget, estimate profit, and decide what you're likely to spend on equipment, hiring and pensions. You don't need a perfect forecast. A sensible estimate, updated every quarter, is much better than none.
A software consultancy in Sevenoaks did exactly this. The director spent an hour with us in April each year, sketching out expected turnover, costs and any big purchases. By the autumn, there were no surprises, and the year-end conversation took twenty minutes.
When you set up a company, you choose its accounting reference date, and it can be changed later, within limits. The year-end affects when your tax is due, when your accounts are filed and how well planning fits your business. A seasonal business might choose a date after its busy period, so the numbers are clear when it plans. A company that wants its accounts to line up with the personal tax year might choose 5 April or 31 March. There's no perfect answer, but there is a sensible one for your business, and it's worth a conversation.
I think of planning as having three natural windows. The first is the start of the year, when you set expectations. The second is mid-year, around month six, when you check progress and adjust. The third is the main review, three to four months before the year-end, when there's still time to act on what you find. A final check four to six weeks before year-end picks up anything left.
If you do nothing else, hold the main review. Three months is long enough for a purchase to be delivered, for a pension provider to process a contribution and for you to think carefully about a decision.
Tax rules change, often at the Budget. Rates, allowances and reliefs can shift, sometimes with effect from the following April. Build a review into your calendar whenever a Budget is announced, and ask what has changed for your company. The changes to dividend tax rates in April 2026 and to capital allowances this year are good examples. A strategy that was right two years ago can be wrong today.
The starting point is a forecast of the year's profit. Take your management accounts to date, add the expected income and costs for the remaining months, and see where you land. This gives you an estimated Corporation Tax bill, and a view of where you sit relative to the £50,000 and £250,000 lines.
This matters more than people expect. At £50,000 of profit, the tax is £9,500. At £52,000, it's £10,030. Two thousand pounds of extra profit costs £530, a rate of 26.5%, not the 19% you were paying below the line. Knowing that, you can decide whether a pension contribution, equipment purchase or bonus makes sense.
Here is the list I go through with clients in the final quarter.
Companies prepare accounts on an accruals basis, which means costs count in the period they relate to, not necessarily the period they're paid. One useful consequence concerns bonuses. If a company commits to a bonus before the year-end, and pays it within nine months of the year-end, it can generally be deducted in the year it was earned. If it's paid later, the deduction waits until the payment date.
A manufacturer in Tonbridge used this well. He agreed a bonus for his three staff in March, accrued it in the accounts, and paid it in May. The company got the deduction for the year just ended, and the staff received the money a couple of months later.
If you owe the company money at the year-end, a section 455 charge of 35.75% applies to loans made on or after 6 April 2026, if the balance isn't repaid within nine months and one day. Review the account before the year-end. If it's overdrawn, decide how it will be cleared, whether from personal funds, a dividend or a bonus. This isn't strictly about reducing Corporation Tax, but it's one of the most common year-end surprises, and it belongs on the checklist.
A debt you've concluded won't be paid can usually be written off and deducted. Obsolete stock can be written down. Neither feels pleasant. Both reduce the profit on which you're taxed, and both give a more accurate picture of the business.
Good planning depends on current information. If your bookkeeping is six months behind, any forecast is guesswork. Reconcile your bank account monthly, record invoices promptly and file receipts as you go. Cloud accounting software makes this easier, and it gives your accountant a live view of the numbers.
Every three months, look at the profit and loss account and compare it with your budget. What's different? A large contract might have been won or lost. A key customer might be paying late. Costs may have risen. Each of these changes your expected profit, and with it your tax position.
A landscaping business near Paddock Wood has strong summers and quiet winters. Its director looks at the numbers at the end of each quarter, and by October he has a clear estimate of the full-year profit. That gives him five months to plan, rather than five days.
Corporation Tax is due nine months and one day after the year-end, which is a long time to spend cash that isn't yours. A simple habit helps: move a fixed share of each month's profit, typically around 20% to 25%, into a separate savings account. When the bill arrives, the money is there. I'll mention here that this is the habit that most clearly separates the directors who find tax stressful from those who don't.
Several reliefs depend on evidence that is easy to gather as you go, and hard to reconstruct afterwards.
New contracts, a new hire, a house move, a planned purchase, a change in the way you're paid: all of these can change your planning. I'd always rather hear about a decision before it's made than after. A five-minute call or email can change the advice completely.
How you pay yourself and your staff has the largest effect on the company's tax, and on your own.
Your own pay. A director's salary is deductible, but dividends are not. For many single-director companies, a salary of £12,570 is a sensible level, because it uses the personal allowance and counts toward the State Pension without employee National Insurance, although it does cost the company around £1,136 of employer's National Insurance. Dividends then provide the remainder. Rates and thresholds change, so review the balance at least once a year. Our separate guide on salary versus dividends works through the numbers.
Employer's National Insurance. The employer rate is 15% above £5,000 per employee. If you employ at least one person apart from the director, you may qualify for the Employment Allowance of up to £10,500 a year, which can wipe out the bill for a small team. It's worth checking each year.
Staff pay and bonuses. Salaries and bonuses are deductible. As above, a bonus committed before the year-end and paid within nine months can be deducted in the year it was earned. Employer pension contributions for staff are deductible too.
Family members. A spouse or relative who does genuine work can be paid a fair wage, and the company deducts it. They must actually do the job, and the pay must be reasonable.
Benefits and perks. Some are tax-free, such as a mobile phone contract in the company's name, the £6 a week home-working payment, and trivial benefits of up to £50 each. Others create a tax charge for you and a National Insurance bill for the company. Check before you start.
If your company is going to buy equipment, vehicles or machinery, the year-end is the point to look at it.
The allowances. The Annual Investment Allowance lets a company deduct up to £1 million of qualifying spending in the year it's bought. Full expensing gives a 100% deduction on new main-rate plant and machinery. A 40% first-year allowance, introduced from 1 January 2026, covers some additional assets, including leased ones. The writing-down allowance on the main pool was cut from 18% to 14% for companies from 1 April 2026, so assets that don't qualify for a full deduction are written off more slowly than before. Cars sit outside the Annual Investment Allowance, and the rules for electric cars have changed several times, so please check before buying.
Timing. The deduction usually falls in the period in which you buy the asset. A van delivered in the last week of the year gives full relief for that year. A van delivered the week after gives it for the next. If you were going to buy it anyway, check the year-end first.
Don't buy just to save tax. I say this at least once in every year-end conversation. A £20,000 purchase that saves £5,300 of tax still costs you £14,700. Make sure the asset is something the business needs, and that the cash flow can cope.
Leasing versus buying. Leased assets are treated differently. Depending on the structure, the payments may be deductible as they're made, or the company may claim allowances. It's worth looking at both options for larger items.
Keep a register. A simple spreadsheet of assets, with the date, cost, supplier and use, makes claims easy and protects you in an enquiry.
For directors, a pension contribution from the company is often the single most efficient planning tool available.
How it works. The company pays an employer contribution into your pension. It is deductible against profits, attracts no employer's National Insurance and isn't taxed on you when paid. The money grows tax-free until you draw it.
How much. The annual allowance is £60,000, including contributions by you and the company, with the ability to carry forward unused allowance from the previous three tax years if you were a member of a scheme. Higher earners may have a reduced allowance. Contributions must be reasonable in relation to your work and overall pay.
Timing. The contribution must be paid, not just agreed, before the year-end to count for that year. Allow time for your provider to process it.
The middle band. If profit is between £50,000 and £250,000, each £1 into a pension saves 26.5p of Corporation Tax. A company with £60,000 of profit pays £12,150. A £10,000 contribution reduces profit to £50,000 and the tax to £9,500, a saving of £2,650, so the net cost is £7,350.
The trade-off. Pension money is locked in until your minimum pension age, which rises to 57 in 2028. For a director who doesn't need every pound today, it's an excellent trade. For one who needs working capital, it may not be.
Three more topics are worth a regular check. R&D relief may apply if your company develops new products, software or processes, and its formal requirements, including advance notification, mean early planning pays. Associated companies share the £50,000 and £250,000 thresholds, so check whether a second company changes your rate. And losses from earlier years can be carried forward, and in some cases back, to reduce this year's tax, but only if they're claimed.
Let me put numbers on this. A trading company has a 31 March year-end. In November, the director and I review the figures. Profit for the year to 31 March 2027 is forecast at £110,000, which would mean Corporation Tax of £25,400.
We go through the checklist. The company needs new equipment in the spring, costing £25,000, which can be bought before the year-end and qualifies for a full deduction. The director also doesn't need all of the profit as income and would like to make a £20,000 employer pension contribution.
Both are done in February. Taxable profit falls to £65,000, and Corporation Tax to £13,475. The saving is £11,925, which is 26.5% of the £45,000 of deductible spending.
The company has spent £45,000, of which £25,000 is an asset it needed, and £20,000 is in the director's pension. The saving comes from acting before 31 March. A conversation in April would have left the same choices on the table, but none of that relief.
Quick answer: Start planning at the beginning of the accounting year, hold a main review three to four months before the year-end, and keep the books up to date throughout. Review pay, capital spending and pensions, because these have the greatest effect on the Corporation Tax bill.
What this means for a company director: Your company's profit is fixed on the last day of its accounting period, so the decisions that reduce tax have to be made before it. Planning is a habit, not an event. A forecast, a quarterly check and a conversation with your accountant are enough for most companies.
Example: A company forecasts £110,000 of profit and a Corporation Tax bill of £25,400. By buying £25,000 of qualifying equipment and paying £20,000 into the director's pension before the year-end, taxable profit falls to £65,000 and tax to £13,475, a saving of £11,925.
Common mistakes: Waiting until after the year-end; spending money solely to save tax; failing to keep books up to date; ignoring the £50,000 and £250,000 thresholds; paying a pension contribution too late; forgetting associated companies; and not setting aside cash for the bill.
When should you speak to an accountant? At the start of the year, to set expectations. Three to four months before the year-end, for the main review. Before any large purchase, pension contribution or bonus. And whenever your circumstances change.
Good Corporation Tax planning is mostly a matter of asking the right questions at the right time. At Peter Hodgson & Co, we work with SMEs and company directors across Tunbridge Wells, Tonbridge, Sevenoaks and the wider Kent and South East area, and we get in touch with our clients before the year-end, while there's still time to act.
If you'd like a planning review for your company, whether you're a few months from your year-end or just starting out, 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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