Tax year end planning – changes to remuneration

The November Budget introduced several income tax increases, although employment income remains unaffected in line with the government’s commitment not to raise tax for “working people”. As Sam noted in her article, the main changes relevant to owner managed businesses are: 

• A 2% increase in dividend tax rates from April 2026
• A 2% increase in tax on rental and savings income from April 2027

These changes create some useful planning opportunities ahead of 5 April 2026, particularly for those operating through a limited company. 

Where individuals have unused basic rate band, there may be a benefit in bringing forward dividend payments into 2025/26 before the higher rates apply. Even for higher rate taxpayers, there can still be a modest saving, although this needs to be balanced against the impact on cashflow and the company’s available reserves. 

If shares are held by wider family members, there may also be scope to utilise their lower tax bands, but the income shifting rules must be considered carefully. 

It is also important that dividends are declared and recorded correctly so they fall into the intended tax year. Interim dividends are taxable when paid, so timing and documentation matter. 

March can often be a tight month for cashflow, meaning there may not be spare funds to physically pay a dividend before the year end. Dividends do not always need to be paid in cash at the time to be treated as issued, but the correct accounting steps must be followed. If this is something you are considering, we can guide you through the process to ensure it is handled properly. 

For some businesses, other forms of remuneration—such as rent for farmland used by the company or interest on director loan accounts—can provide a more efficient outcome. Even with the future increases to tax on rents and savings, these methods can still compare favourably with dividends because they are deductible for corporation tax purposes. 

Assuming an ability to take a mixture of rent and interest to £50,000 as remuneration from the example in Liz’s article there is an ability to save tax of £3,250. This falls to £2,250 once the increased tax rates on interest and property apply. Whether this is appropriate will depend on your circumstances, and planning needs to be done before the year end. 

Other year end considerations 

• The writing down allowance for plant and machinery reduces from 18% to 14% next year, although this only affects businesses spending more than £1m annually, as the annual investment allowance (AIA) remains available (except for mixed partnerships).
• Where the AIA is not available, there is a new first year allowance at 40%. This is on new equipment only and does not include cars. For the majority of businesses, the AIA would be preferable if it is available.
• To claim capital allowances, you must own the asset within the year—an invoice alone is not enough.
• For assets bought on HP, relief is available when the asset is first brought into use, not when the agreement is signed.
• Plant and machinery should always be purchased for commercial reasons, not purely for tax relief.
• Pension contributions can still reduce income tax, but from April 2027 pensions may fall within the scope of IHT, so the wider implications need careful thought. Independent financial advice is essential. 

If you are unsure whether you are withdrawing funds from your company in the most tax efficient way, or would like to review your remuneration strategy ahead of the year end, please get in touch—we can help you explore the options and identify what works best for your circumstances.