How business owners can start planning for their next company year end now

Your company year end is naturally one of the most important dates in a business owner’s calendar. It is the moment for you to sit down with your accountant and accurately calculate your tax return for the year.

Although a great deal of media attention in April usually focuses on the start of the new tax year, it is also a watershed moment for many businesses, because March is the busiest month for business year ends.

Indeed, 24.48% of businesses end their accounting periods in March, almost in line with the new tax year.

Moreover, from 2024/25, all unincorporated businesses will be taxed on the profits generated between the start and end of the tax year, from 6 April to 5 April, regardless of the year end that you prepare your accounts for.

As a result, there is a high chance you have just had your company year end and are now preparing for key HMRC deadlines such as paying your Corporation Tax bill.

With the new tax year having started too, this time of year presents an opportunity to carefully review your finances and work out where you can squeeze value out of your money through incisive planning. Your new accounting period may have just started, but now is the time to start preparing for the end of the next year so you can seize the opportunities to maximise your wealth.

Of course, even if your accounting period end falls elsewhere in the year, it is still important to consider how you can start planning for the next 12 months as soon as possible.

So, find out how you can start planning for your 2024/25 year end now.

Typical tax year end planning may not be as applicable to business owners

When the new tax year starts on 6 April, much of the commentary focuses on making the most of tax allowances and exemptions. In particular, you may have seen many banks and product providers suggesting that you make the most of your ISA allowance.

Standing at £20,000 in 2024/25, this is the maximum amount you can contribute across your range of ISAs each tax year. Any wealth held within ISAs is then completely protected from Income Tax, Capital Gains Tax (CGT), and Dividend Tax.

ISAs are valuable vehicles for financial planning thanks to this tax efficiency. Saving or investing wealth through ISAs can be hugely useful, allowing you to create a tax-efficient source of income for later down the line.

Yet, for business owners, looking to instantly maximise the ISA allowance may not necessarily be the first step to take at the start of the tax year. That is because you need to assess this decision against your personal circumstances and goals for the future.

For example, you might be considering leaving your business imminently. In that case, you could be better suited investing that money in your business to grow it further, and then accessing it when you come to exit your company.

Imagine that you have £40,000 of surplus profit at your company year end. You could extract £20,000 from your business and contribute this to your ISA. But, you will likely face a tax bill when taking this money out of the business, and you might not need more wealth in an ISA if you plan to leave your business in the next five years.

Meanwhile, it could actually be more effective to invest it in your business. You could improve your product or service in some way, or perhaps hire new staff who can help you further expand.

This could be more tax-efficient in the long term, and actually help you generate greater growth on that surplus over those final five years. You could then be in a better position to enjoy that profit when selling your business or passing the reins on to your family.

It is important to weigh up the pros and cons of these decisions, making them in line with your specific circumstances as a business owner and your future goals.

Pension planning is still highly tax-efficient for business owners

Although not all individual tax year opportunities like ISAs will be relevant to business owners, one that certainly could be is making pension contributions – and it could have benefits for the end of your business accounting period, too.

When the new tax year starts, your pension Annual Allowance – the maximum amount you and your company combined can tax-efficiently contribute to your pension in a single tax year – also resets. In 2024/25, the Annual Allowance stands at £60,000. Should you make contributions personally rather than from your business, your own tax-relievable contributions are capped at 100% of your earnings (or £3,600 if more).

You may have a lower Annual Allowance if you are a high earner or have already flexibly accessed your pension. Equally, you may be able to carry forward unused allowance from the previous three tax years.

Pension contributions are highly tax-efficient, as you generally receive tax relief on contributions up to the Annual Allowance. Furthermore, interest and investment returns generated within a pension are free from Income Tax and CGT.

But for business owners, adding money to your pension when the tax year starts can be even more tax-efficient, as it could reduce your company’s tax liability.

That is because employer pension contributions are usually considered an allowable business expense for Corporation Tax purposes. So, if you have surplus profit to invest, contributing it to your pension could be effective because you can set it aside for the future in a tax-efficient way for both you and the business.

Your company year end presents an opportunity to review your Corporation Tax bill and consider whether you could mitigate it next year with careful pension planning like this.

The 2024 general election could present new financial challenges

While much of the new tax year planning remains the same year-on-year, the 2024/25 tax year is actually quite unique in that it is just ahead of a looming general election. This could affect the changes that have come into place, which in turn could have long-lasting effects on how you manage your wealth at the start of your new accounting period.

Much of the early polling data suggests that a Labour win is more likely than a Conservative victory, meaning a change of government could be imminent. Indeed, as the Guardian reported on 7 May, voting intention for Labour was 43.6%, falling to 23.6% for the Conservatives.

If these figures do represent the ultimate outcome, Labour could vastly change the financial landscape with new policies and regulations.

In particular, there are suggestions that Labour could reintroduce the pension Lifetime Allowance (LTA), a threshold that Conservative chancellor Jeremy Hunt officially abolished on 6 April 2024. The LTA previously placed a lifetime limit on tax-efficient pension saving, with pension savings exceeding £1,073,100 potentially subject to an additional tax charge when you came to withdraw them.

If Labour were to bring this threshold back into place, it could make pension saving less attractive. In turn, this might change which methods you choose for extracting value from your business. This is why it is so important to work with a financial professional who can help you stay up to date with the latest changes and find the most effective ways for you to manage your wealth.

Get in touch

Need support managing your wealth as a business owner? We can help at Rosebridge.

As a team of Chartered financial planners, we can use our knowledge and experience to find bespoke planning solutions for business owners like you, so that you can make the most of the hard work you put into your company.

Email enquiries@rosebridgeltd.com or call 01204 300010 to speak to one of our team today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning tax planning.

The value of your investments can go down as well as up, so you could get back less than you invested.