Do you work for yourself? Here are five end of tax year considerations for the self-employed.
1. Take advantage of the dividend allowance
Because the rate of dividend tax is significantly lower than income tax, self-employed contractors who own a limited company often choose to pay themselves a minimum salary and the bulk in dividends. In the 2024/25 tax year, you won’t need to pay any tax on the first £500 of dividend income you receive. This is called the tax-free dividend allowance.
If your only income is from investments, then you can also use your tax-free personal allowance before you start paying tax on dividends. So, on top of the £500 dividend allowance, you could earn another £12,570 tax-
free in 2024/25. During the Budget it was confirmed that the existing freeze on income tax and National Insurance thresholds introduced by the previous government in 2021, will remain in place until April 2028.
2. Review your pension payments
Whether you’re a sole trader, in partnership with one or more others, or run a limited company, finding ways to minimise how much tax you pay should be an important aim right now.
A great way to reduce your tax bill while delivering a boost to your financial future in the process, is to make pension contributions – especially if you’ve enjoyed a good business year and have surplus profits.
Sole traders and partnerships
If you’re a sole trader or in partnership, the only way to pay into a pension is to make personal contributions into a pension. If you’re aged 75 or younger, you can usually contribute the lower of 100 per cent of profits or £60,000 and get an immediate 25 per cent boost in the form of basic-rate tax relief.
And if profits exceed £50,270 or £125,140, you might be able claim back an extra 20 per cent or 25 per cent, respectively, on the total contribution (net payment plus basic-rate tax relief) via self-assessment. An important part here is that you must remember to reclaim the tax.
Thousands of people don’t do this every year and lose out on the tax relief.
Private limited company directors
If you own and run a limited company, you have a couple of options when it comes to pension funding. You can either make personal contributions as laid out above or pay via the business. If you choose the latter, payments can be made from pre-tax profits, thus trimming your corporation tax bill. What’s more, if you planned to draw that money as salary, you’ll save national insurance too.
Importantly, the 100 per cent of earnings rule does not apply on company contributions. So, if you draw a small salary and take the rest in dividends for tax purposes, you can still pay up to £60,000 into a pension and get corporation tax relief.
And unlike personal pension contributions, where you need to be under age 75 to benefit from up-front tax relief, there is no age restriction on company contributions to save corporation tax.
Understand your accounting dates..
It’s possible that your company’s accounting period differs from the official UK tax year. For instance, it may run from 1 January to 31 December or 1 April to 31 March. This means that, to offset pension contributions against this year’s corporation tax bill, you must make the payment before the end of your accounting year.
3. Put your surplus profits to work
Utilise your excess profits effectively by putting them to work for your long-term financial future. If your business has surplus profits that you won’t need to access for several years, consider investing them wisely.
For sole traders and partnerships, surplus profits are treated as personal funds. You can take advantage of this by investing up to £20,000 before 5 April into an individual savings account (ISA) to protect future gains, dividends, and interest from HMRC.
While limited company funds cannot be invested in ISAs due to legal restrictions, directors can still invest their personal money into ISAs. Instead, consider investing company funds in the stock market to potentially boost returns on cash reserves, especially if inflation outpaces interest earnings.
Although investing company funds isn’t solely an end-of-tax-year activity, it can offer tax advantages. However, it’s important to note that investing in something like a general investment account (GIA) won’t qualify for corporation tax relief like pension contributions.
Keep in mind that investing company reserves exposes them to market fluctuations, and there’s a risk of receiving less than your initial investment.
Therefore, it’s crucial that your business doesn’t expect needing these funds within the next five years.
4. Make a charity donation now to reduce your tax bill
If you have the spare funds, making a charitable donation before 31 January 2026 could reduce your tax bill for the 2024/25 tax year. This is because donations can be claimed in either the current or previous tax year.
This is particularly useful if you paid a higher rate of tax last year and a lower rate this year – as you can still claim the higher rate of tax relief on your donation.
5. Correct and claim against previous tax years
You can claim a refund for any overpayments you’ve made in the last four tax years. So, if you come across something you could’ve claimed for previously, or if you spot a mistake in previous years’ tax returns, make a note.
Write to HMRC explaining that you’re making a claim for ‘overpayment relief’.
You’ll need to include:
• Proof you’ve overpaid tax through self-assessment.
• Signed declaration saying the details you’ve given are correct and that you haven’t previously tried to reclaim the refund in question.
• How you’d like the repayment to be made.
This article is from the Good Guide to Financial Planning 2025, which can be downloaded free here.
