Five ways to maximise tax efficiency before the new year

Practical planning tips for sole traders and small business owners

As the year draws to a close, it’s the ideal time for business owners, particularly sole traders, to review their finances and make sure everything is in good shape before 2026. A little forward planning before 31 December can make a real difference to your tax position, helping you retain more of your income while staying fully compliant with HMRC.

Here are five practical ways to maximise your tax efficiency before the new year.

1. Review your income and expenses
   Start by reviewing your income levels and ensuring you’ve claimed all allowable business expenses. Common deductible costs for sole traders include office or home-working expenses, travel and vehicle costs, professional fees and subscriptions, and marketing or software expenses.
   If you’ve purchased new tools, equipment or technology, check whether they qualify for capital allowances such as the Annual Investment Allowance (AIA). Claiming correctly can reduce your taxable profits.
2. Time your income and expenses carefully
   If your income is likely to fluctuate, it can be worthwhile to time when you issue invoices or incur expenses. For example, if you expect your income to fall next year, you might choose to defer finalising work and invoicing until after 5 April. Alternatively, if you anticipate higher income next year, it could be beneficial to bring some income forward into the current tax year. In general, operational decisions should not be made purely on the basis of tax strategy but it could be one consideration, particularly if the customer or supplier has no pressing deadline to finalise a transaction.
3. Use your personal allowances
   Every taxpayer benefits from annual allowances that can’t be carried forward. Before year-end, check that you’ve made full use of your personal allowance (£12,570 for 2025/26), savings allowance and ISA contributions.
   If you are married or in a civil partnership, you may also be able to claim the marriage allowance to transfer part of your personal allowance to your partner.
   Find out more here.
4. Make pension contributions
   Pension contributions remain one of the most effective and legitimate ways to reduce taxable income. As a sole trader, any personal pension payments you make qualify for tax relief at your marginal rate (subject to maximum lifetime contributions). For a basic rate taxpayer, every £80 you contribute, HMRC adds £20, and higher-rate taxpayers can claim back additional relief through their tax return.
   If your cash flow allows, adding to your pension before the end of the tax year can help you save tax and strengthen your long-term financial position.
5. Review payments on account
   Many sole traders are caught out by payments on account, especially if their profits have increased. Estimate your likely tax bill before the new year and make sure you’ve set aside enough to cover the next payment due in January.
   If you believe your income will be lower this year, you can ask HMRC to reduce your payments on account to avoid overpaying.
   

A final thought

Taking the time to review your finances before year-end not only helps reduce your tax bill but also gives you a clearer view of your business performance and plans for the year ahead.
Tax efficiency isn’t about avoidance; it’s about being informed, proactive and strategic. A short discussion with your accountant now can help you identify the best opportunities for your business.
If you’d like tailored advice on tax-efficient planning or support with year-end preparation, get in touch with our team to arrange a review before the deadline.

For more information on our tax services click here.