You can legally pay less tax by claiming every genuine business cost, using the allowances the law gives you and planning how you take income. Simple, well-documented steps beat complicated schemes, which HMRC challenges and which can cost far more in penalties than they save.
- Claim all allowable expenses. Keep receipts and records for everything that is wholly for the business, including mileage, working from home and qualifying clothing.
- Use your allowances. The personal allowance is £12,570 and the dividend allowance is £500 for 2026 to 2027. The trading allowance for side income is £1,000, rising to £3,000 from 6 April 2027. If you use the trading allowance you cannot also claim expenses against that income.
- Claim capital allowances on equipment, technology and vehicles used in the business, including the Annual Investment Allowance. Timing a purchase either side of a year end can change your relief.
- Plan salary and dividends (limited companies). A common approach is a salary at the National Insurance threshold of £5,000 or at the personal allowance of £12,570, with the rest taken as dividends. Dividends carry no National Insurance but are taxed at 10.75% (basic rate) and 35.75% (higher rate) above the allowance for 2026 to 2027. The right mix depends on your other income.
- Make employer pension contributions. Contributions paid by your company are deductible for Corporation Tax and fund your retirement tax-efficiently.
- Use specific reliefs where they apply, such as R&D tax relief for qualifying development work.
Late filing and payment penalties, poor records and mixing personal and business money can wipe out any saving. A short planning meeting with your accountant before your year end is usually the most valuable step.
Legislation and guidance: Income Tax Act 2007, section 35 (personal allowance); section 13A (dividend nil rate); Income Tax (Trading and Other Income) Act 2005, Part 6A (trading allowance); Capital Allowances Act 2001, section 51A (annual investment allowance); Corporation Tax Act 2009, section 54 (deductible business expenses); HMRC Business Income Manual BIM46035 (employer pension contributions).
