UK Tax-Saving Toolkit

2025/26

Smart strategies for directors, landlords, and contractors

Stay compliant. Save tax. Grow smarter.

MA & Co

Welcome to your comprehensive tax-saving toolkit

As we enter the 2025/26 tax year, UK tax rules continue to evolve, creating both challenges and opportunities for directors, contractors, and landlords. This toolkit provides you with the latest rates, practical strategies, and actionable insights to help you navigate these changes effectively.

Who this is for: Directors of limited companies, CIS contractors, landlords with SPVs/HMOs, and small business owners seeking to optimise their tax position while staying fully compliant.

Section 1: Salary vs Dividend Planner

For company directors, finding the optimal mix of salary and dividends is crucial for tax efficiency. With dividend allowances reduced and National Insurance changes, getting this right can save you thousands.

2025/26 Tax Rates & Thresholds

Income Tax Bands	Rate	Threshold
Personal Allowance	0%	Up to £12,570
Basic Rate	20%	£12,571 - £50,270
Higher Rate	40%	£50,271 - £125,140
Additional Rate	45%	Above £125,140

Dividend Tax Rates	Rate	Notes
Dividend Allowance	0%	First £500 (reduced from £1,000)
Basic Rate	8.75%	After allowance used
Higher Rate	33.75%	After allowance used
Additional Rate	39.35%	After allowance used

National Insurance 2025/26

Class 1 NICs (Employees)	Rate	Threshold
Main Rate	8%	£12,570 - £50,270
Upper Rate	2%	Above £50,270

Worked Example: Salary vs Dividend Optimisation

Let's compare different strategies for a director taking £60,000 from their company:

Strategy	Salary Only	Optimised Mix	Dividend Heavy
Salary	£60,000	£12,570	£9,100
Dividends	£0	£47,430	£50,900
Income Tax	£9,486	£0	£0
Employee NICs	£3,798	£0	£0
Dividend Tax	£0	£4,106	£4,410
Employer NICs	£6,585	£447	£0
Corporation Tax (19%)	£0	£9,012	£9,671
Total Tax Cost	£19,869	£13,565	£14,081
Net Take-Home	£40,131	£46,435	£45,919

Result: The optimised mix saves £6,304 compared to salary only and £516 compared to dividend-heavy approach.

Three Pro Tips for Salary vs Dividend Planning

💰 Pro Tip #1: The Sweet Spot Strategy

Set salary at £12,570 (personal allowance) to maximise your tax-free income while preserving National Insurance benefits like State Pension credits.

💰 Pro Tip #2: Watch the £50,270 Cliff Edge

If total income approaches £50,270, consider deferring dividends to next tax year to avoid higher rate tax and maintain Child Benefit (if applicable).

💰 Pro Tip #3: Use Your Partner's Allowances

If your spouse/partner has unused personal or dividend allowances, consider making them a shareholder to utilise their tax-free bands.

Want your exact optimal mix?

Every director's situation is unique. Book a free consultation with MA & Co to get your personalised salary/dividend calculation and save thousands in tax.

Section 2: VAT Threshold & Planning

VAT registration is mandatory once your taxable turnover exceeds £90,000 in a 12-month period. However, strategic planning around the threshold and choosing the right VAT scheme can significantly impact your cash flow and administrative burden.

VAT Thresholds 2025/26

VAT Requirement	Threshold	Action Required
Compulsory Registration	£90,000	Register within 30 days
Voluntary Registration	No minimum	Can register at any level
Flat Rate Scheme Entry	Under £150,000	Simplified VAT calculation
Flat Rate Scheme Exit	£230,000	Must leave scheme

Pre-Registration Checklist

Essential Steps When Approaching £90,000 Threshold

Monitor rolling 12-month turnover monthly
Consider voluntary registration if you have VAT-able costs
Review customer base - will 20% price increase affect demand?
Evaluate Flat Rate Scheme eligibility and benefits
Set up VAT-compliant accounting systems
Prepare for quarterly VAT returns and payments
Consider timing of large contracts to manage threshold crossing
Get professional advice on scheme choices

Flat Rate vs Standard VAT Explained

Aspect	Standard VAT	Flat Rate Scheme
Calculation	Output VAT minus Input VAT	Fixed % of gross turnover
Input VAT Recovery	Yes, on most purchases	No (except capital items >£2,000)
Administration	Detailed records required	Simplified record keeping
Cash Flow	Pay on invoiced amounts	Pay on cash received
First Year Discount	N/A	1% discount available

Limited Cost Trader Warning: If your goods costs are less than 2% of turnover or under £1,000 annually, you must use the 16.5% flat rate regardless of your business sector.

Sector-Specific VAT Guidance

For CIS Contractors:

Labour-only subcontractors often benefit from Flat Rate Scheme due to low material costs. Typical flat rate: 14.5% for construction services.

For Landlords:

Most residential letting is VAT-exempt, but commercial property letting may be VATable. Consider opting to tax commercial properties for input VAT recovery.

For Small Businesses:

Service-based businesses with low input VAT often save money on Flat Rate Scheme. Product-based businesses may prefer Standard VAT.

Section 3: Contractor & CIS Deductions

The Construction Industry Scheme (CIS) affects cash flow significantly for contractors and subcontractors. Understanding how deductions work and when you can reclaim them is crucial for maintaining healthy finances.

CIS Deduction Rates 2025/26

Subcontractor Status	Deduction Rate	Applied To	Cash Flow Impact
Registered	20%	Labour costs only	Better cash flow
Unregistered	30%	Labour costs only	Significant cash flow impact
Gross Payment Status	0%	No deductions	Optimal cash flow

How CIS Deductions Impact Your Cash Flow

Example: £10,000 Construction Job

Invoice breakdown: £7,000 labour + £3,000 materials = £10,000 total

CIS deduction (20%): £7,000 × 20% = £1,400

Payment received: £10,000 - £1,400 = £8,600

Cash flow impact: You're £1,400 short until tax refund

Reclaiming CIS Over-Deductions

Step-by-Step Reclaim Process

Keep all CIS payment statements from contractors
Complete Self Assessment by 31 January deadline
Include all CIS deductions in SA103 form
HMRC automatically calculates if refund is due
Refunds typically processed within 4-6 weeks
Set up Self Assessment online account for faster processing
Consider making payments on account to improve cash flow

Year-End CIS Health Check

🔴 Red Priority (Complete by 31 January)

File Self Assessment return including all CIS income
Ensure all CIS statements received from contractors
Pay any balancing charge due
Check UTR number matches all CIS records

🟡 Amber Priority (Complete by 31 March)

Chase missing CIS statements from contractors
Review CIS registration details for accuracy
Consider Gross Payment Status application if eligible
Plan cash flow for next year's CIS deductions

🟢 Green Priority (Ongoing)

Maintain digital records of all CIS documentation
Monitor monthly CIS statements for errors
Keep separate records for materials vs labour costs
Consider quarterly VAT planning alongside CIS

Pro Tip: If you're consistently getting large CIS refunds, consider applying for Gross Payment Status or reducing your payments on account to improve monthly cash flow.

Section 4: Landlord & Property Tax

Section 24 restrictions continue to impact landlords significantly. Understanding the rules and exploring alternatives like SPV structures can help optimise your property investment returns.

Section 24 Explained Simply

What Changed:

Before Section 24: Landlords could deduct full mortgage interest from rental income before calculating tax.

After Section 24: Landlords pay tax on gross rental income, then claim back basic rate tax credit (20%) on mortgage interest.

Section 24 Impact Example

Scenario	Before Section 24	After Section 24	Difference
Rental Income	£15,000	£15,000	-
Mortgage Interest	£8,000	£8,000	-
Other Expenses	£2,000	£2,000	-
Taxable Profit	£5,000	£13,000	+£8,000
Tax @ 40%	£2,000	£5,200	+£3,200
Tax Credit (20%)	£0	-£1,600	-£1,600
Net Tax Payable	£2,000	£3,600	+£1,600

Additional Impact: Section 24 can push landlords into higher tax brackets, potentially affecting Child Benefit and creating additional tax charges.

SPV vs Personal Ownership

Factor	Personal Ownership	SPV (Limited Company)
Mortgage Interest Relief	20% tax credit only	Full tax deduction
Tax Rate	Up to 45% income tax	19% corporation tax
Stamp Duty	3% surcharge	3% surcharge
Capital Gains	10%-28% CGT	19% corp tax + extraction tax
Income Extraction	Direct to personal	Dividend/salary planning needed
Mortgage Rates	Standard BTL rates	Higher commercial rates

Rental Income Optimisation Strategies

For Existing Personal Landlords

Consider transferring properties to lower-rate spouse/partner
Maximise allowable expense claims (repairs, maintenance, management)
Use property allowance (£1,000) for small-scale landlords
Time major repairs to optimise tax relief timing
Consider converting to furnished holiday let (if eligible)

For New Property Investors

Evaluate SPV structure before purchase
Consider joint ownership for married couples
Look at commercial property (not affected by Section 24)
Explore property development opportunities
Consider rent-a-room scheme for owner-occupiers

Key Insight: SPV structures work best for higher-rate taxpayers with significant mortgage borrowing. Basic rate taxpayers may still benefit from personal ownership due to lower transaction costs.

Section 5: Business Expenses & Reliefs

Many businesses miss out on legitimate tax deductions and reliefs. This section highlights commonly overlooked opportunities to reduce your tax bill legally and effectively.

Commonly Missed Deductions

🏠 Home Office Expenses

Method	Rate/Allowance	Best For
Simplified Flat Rate	£6 per week (£312/year)	Simple arrangements
Actual Costs	Proportion of home expenses	Dedicated office space
Director's Home Office	Up to £26 per week tax-free	Company directors

🚗 Mileage & Travel

Vehicle Type	First 10,000 Miles	Additional Miles	Notes
Cars/Vans	45p per mile	25p per mile	Business journeys only
Motorcycles	24p per mile	24p per mile	All business miles
Bicycles	20p per mile	20p per mile	Eco-friendly option

Mileage Pro Tip: Keep detailed records of business journeys. Mobile apps can automatically track business vs personal miles and calculate your claims.

📚 Training & Professional Development

Allowable Training Expenses

Professional qualifications relevant to your business
Industry conferences and seminars
Skills training courses
Professional memberships and subscriptions
Business coaching and mentoring
Software training and certifications

💰 Pension Contributions

Pension Type	Annual Limit	Tax Relief	Best For
Personal Pension	£60,000 or 100% earnings	At marginal rate	Self-employed
Company Pension	£60,000	Corporation tax deductible	Directors/employees
SIPP	£60,000	At marginal rate	Investment control

R&D and Creative Reliefs

R&D Tax Credits - Are You Missing Out?

Companies can claim enhanced tax relief on qualifying R&D expenditure. This includes software development, process improvements, and innovative product development.

Relief Type	Rate	Eligible Activities
SME R&D Relief	230% deduction	Innovation, software development
Patent Box	10% tax rate	Income from patented innovations
Creative Industries Relief	25%-45% credit	Film, TV, games, animation

Important: R&D claims require detailed documentation and professional advice. HMRC scrutiny has increased, so ensure claims are robust and well-evidenced.

Equipment & Technology Reliefs

Full Expensing (Replaces Super Deduction)

100% first-year allowance on qualifying plant and machinery
Applies to expenditure from 1 April 2023
Includes IT equipment, machinery, vehicles
Company must own the asset (not lease)
Significant cash flow benefit for growing businesses

Section 6: Director's Loan Do's & Don'ts

Director's loan accounts can be useful tools for managing cash flow between you and your company, but they come with strict rules and potential tax traps if not managed properly.

The Rules You Must Follow

Scenario	Rule	Tax Consequence
Loan to Director >£10,000	Benefit-in-kind charge	Tax on notional interest
Overdrawn DLA >9 months	S455 Corporation Tax	25% tax charge
Loan written off	Deemed distribution	Income tax + NICs
Loan from Director	No tax charges	Company owes money

Common Tax Traps & How to Avoid Them

🚨 Tax Trap #1: The 9-Month Rule

If your director's loan account remains overdrawn 9 months after your company's year-end, HMRC charges 25% corporation tax on the outstanding balance.

Solution: Clear the balance before the deadline through dividend, bonus, or personal repayment.

🚨 Tax Trap #2: Benefit-in-Kind on Large Loans

Loans over £10,000 create a taxable benefit based on the official rate of interest (currently 2.25% for 2025/26).

Solution: Keep loans under £10,000 or charge commercial interest rates.

🚨 Tax Trap #3: The Bed & Breakfasting Trap

Clearing a loan just before the 9-month deadline, then borrowing again shortly after, may be challenged by HMRC.

Solution: Ensure genuine commercial need for new borrowing and maintain clear audit trail.

Smart Director's Loan Strategies

✅ DO's

Keep detailed records of all transactions
Set up formal loan agreements for large amounts
Monitor balances monthly, not just at year-end
Consider charging/paying commercial interest rates
Plan dividend/bonus payments to clear overdrawn accounts
Use the account for legitimate business purposes
Consider spouse/partner loans to spread risk

❌ DON'Ts

Use the DLA as a personal current account
Ignore the 9-month deadline
Mix personal and business expenses
Leave large balances outstanding
Forget to account for benefit-in-kind charges
Assume you can write off loans tax-free
Fail to document the business purpose

Repayment Strategies

Repayment Method	Tax Impact	Best When
Cash Repayment	No tax consequences	You have personal funds
Bonus Payment	Income tax + NICs	Need immediate clearance
Dividend Payment	Dividend tax only	Sufficient retained profits
Salary Sacrifice	Reduced salary	Regular repayment plan

Pro Strategy: The Planned Approach

Instead of scrambling at year-end, plan your director's loan throughout the year. Set monthly limits and review quarterly to avoid last-minute tax charges.

Section 7: Quick-Action Checklists

Time-sensitive tax planning opportunities don't wait for convenient moments. Use these prioritised checklists to ensure you don't miss crucial deadlines or money-saving opportunities.

10 Actions Before Year-End (5 April 2026)

Priority	Action	Deadline	Potential Saving
🔴 HIGH	Maximise pension contributions	5 April 2026	Up to £27,000 tax relief
🔴 HIGH	Use capital gains tax allowance	5 April 2026	£3,000 tax-free gain
🔴 HIGH	Clear overdrawn director's loan	9 months post year-end	Avoid 25% S455 charge
🟡 MEDIUM	Optimise dividend payments	5 April 2026	£500+ annually
🟡 MEDIUM	Claim all business expenses	Self Assessment deadline	£1,000+ typically
🟡 MEDIUM	Consider spouse/partner transfers	5 April 2026	Variable savings
🟢 LOW	Review VAT scheme options	Ongoing	Administrative savings
🟢 LOW	Plan next year's salary/dividend mix	Before payroll setup	Ongoing optimisation
🟢 LOW	Update accounting software	Before year-end	Time savings
🟢 LOW	Book tax planning consultation	Before busy season	Personalised advice

Monthly Tax Admin Checklist

Every Month

Reconcile bank accounts and credit cards
Check director's loan account balance
Monitor VAT threshold if approaching £90,000
Review and code business expenses
Submit CIS returns (contractors)
Process payroll and submit RTI

Quarterly

Submit VAT return and payment
Review cash flow projections
Plan quarterly dividend payments
Review corporation tax position
Update management accounts
Review expense policies and procedures

Annually

Complete Self Assessment by 31 January
File company accounts and tax return
Review salary/dividend strategy
Plan pension contributions
Consider capital gains planning
Review business structure and tax efficiency

Emergency Tax Planning (Last Minute)

⏰ If You Only Have Days Left

Focus on these high-impact, quick wins:

Make pension contributions (can be backdated to 6 April)
Realise capital gains up to annual exemption
Pay spouse/partner salary for tax year
Claim home office and mileage expenses
Make charitable donations for tax relief

Remember: Last-minute planning is better than no planning, but year-round tax efficiency planning delivers much better results and reduces stress.

Ready to Optimise Your Tax Position?

This toolkit provides the foundation, but every business situation is unique. Professional guidance ensures you're making the most of every opportunity while staying fully compliant.

Book Your Free Tax Consultation

Get personalised advice from MA & Co's qualified accountants. We'll review your specific situation and identify opportunities to save tax legally and effectively.

What you'll get:

Personalised salary/dividend calculation
Review of your current tax position
Identification of missed opportunities
Clear action plan for tax savings
Compliance health check

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About MA & Co Accountants

We're an AAT-licensed accounting firm specialising in contractors (CIS), landlords (SPVs & HMOs), small businesses, and company directors. Our practical, client-focused approach helps you stay compliant while maximising your tax efficiency.

✓ AAT Licensed

Professional qualifications and regulatory compliance you can trust

✓ Specialist Knowledge

Expert in CIS, property tax, and company structures

✓ Client-Centric

We focus on your success, not just compliance

MA & Co Accountants

Email: info@maandcoaccountants.com | Phone: 020 8158 8499

Website: www.maandcoaccountants.com

This publication is for general information only and should not be used as a substitute for professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by MA & Co Accountants.