Business and personal tax can be incredibly complex for small businesses, especially when they’d rather be spending their time focused on other aspects of the business.

Using effective corporate tax planning is important if you want to optimise your tax obligations and improve your net profit margin.

Here are some strategies to ensure your company remains compliant with HMRC regulations while also making the most of the tax reliefs available.

Tax thresholds

The threshold for VAT has risen from £85,000 to £90,000 this year as part of the Chancellor’s attempt to support small businesses in the Spring Budget.

For some businesses, this will mean you can defer your VAT registration.

However, you may need to reassess your growth strategies and plan for when you will be required to register.

Registering for VAT before your profits hit the threshold can enable you to reclaim VAT on your business expenses, improving your cash flow and making your business appear more established to potential clients and suppliers.

Investing

The Annual Investment Allowance, still set at £1 million this year, allows you to make a full deduction from profits in the year of purchase.

Full expensing also permits you to completely deduct the cost of qualifying new plant and machinery from your taxable profits in the year you invest.

Until 31 March 2026, you can utilise this to substantially lower your taxable income and tax bill by immediately writing off 100 per cent of these investments.

R&D tax relief can foster innovation by reducing your taxable profits, but it’s crucial to be aware of the new merged schemes now in place.

The combined scheme of R&D Expenditure Credit (RDEC) and Enhanced R&D Intensive Support (ERIS) replaces the previous RDEC and Small and Medium-Sized Enterprise (SME) schemes.

Under this unified regime, companies of all sizes will receive an above-the-line credit, with special provisions for R&D-intensive SMEs.

The merged scheme has lowered the R&D intensity threshold from 40 per cent to 30 per cent for accounting periods beginning on or after 1 April 2024.

This change makes it easier for more SMEs to qualify for enhanced support if their R&D expenditure constitutes at least 30 per cent of their total expenditure.

Compliance considerations

As everyone should know, compliance with legislation is necessary to avoid penalties, so, with changes to regulations – it’s important that you keep updated.

The Making Tax Digital (MTD) scheme mandates that starting in April 2026, all unincorporated businesses with an income exceeding £50,000 will be required to maintain digital records and submit quarterly reports.

Additionally, for non-incorporated business, basis period reform will align the income assessment of unincorporated businesses with the tax year, necessitating more thorough reporting and documentation procedures.

Incorporated companies with profits up to £50,000 pay a Corporation Tax rate of 19 per cent, while those with profits exceeding £250,000 are subject to a higher rate of 25 per cent.

Profits between these amounts fall under a tapered rate system, gradually increasing the tax rate from 19 per cent to 25 per cent as profits rise.

This tiered system highlights the importance of managing your profitability to optimise your tax liabilities.

For tailored business tax planning advice for your business, please get in touch.