Use It or Review It? Making Sense of Your Allowances Before April the 5th as a Business Owner

As April the 5th approaches, many business owners are reminded that certain tax allowances will reset. The phrase “use it or lose it” often circulates in conversations about dividends, pension contributions and capital gains.

However, acting purely to avoid losing an allowance can lead to decisions that feel reactive rather than strategic.

For directors and owner-managed businesses, tax year end is not simply about extracting profit efficiently. It is about ensuring that business decisions and personal financial planning remain aligned.

The more established your business becomes, the more important that alignment becomes.

What Should Business Owners Consider Before April the 5th?

Before the end of the 2025 to 2026 tax year, it may be sensible to review:

• Your salary and dividend structure for the year

• Your £60,000 pension annual allowance and any available carry forward

• Your £500 dividend allowance

• The Capital Gains Tax annual exemption if disposals are planned

• Corporation tax efficiency of pension contributions

• Planned capital expenditure before year end

• Preparation for Making Tax Digital from April the 6th 2026

  
  

Not every item will apply in every situation. The purpose of review is clarity and alignment, not urgency.

Dividend Planning and Income Thresholds

The dividend allowance for 2025 to 2026 is £500. Dividends above this level are taxed according to income band.

For directors, dividend planning should take into account:

• Total taxable income for the year

• Interaction with higher and additional rate bands

• Income between £100,000 and £125,140, where the Personal Allowance is gradually withdrawn

  
  

Within that £100,000 to £125,140 range, the effective marginal tax rate can reach 60 percent due to the tapering of the Personal Allowance. The effect of this is that for every £100 of income between £100,000 and £125,140, an individual only gets to take £40 home - £40 is deducted in income tax, while another £20 is lost by the tapering of the personal allowance (i.e £50 of lost PA, taxed at 40%) which effectively amounts to a 60% tax rate on income within this range.

Before declaring additional dividends in March, it is important to understand how they interact with these thresholds. Extracting profits solely to use allowances may not always support wider planning objectives.

Pension Contributions from Your Company

The standard pension annual allowance is £60,000, however the annual allowance may be subject to tapering for higher income individuals. Unused allowance from the previous three tax years may be available if conditions are met.

For business owners, employer pension contributions can be particularly efficient because they may be treated as a deductible business expense, reducing corporation tax.

However, contributions should reflect:

• Current and forecast business cash reserves

• Planned investment within the company

• Personal retirement objectives

• Aspects of exit strategy planning

  
  

Pension funding can be powerful, but it should sit within a structured long-term plan.

Capital Gains and Business Asset Planning

If you are considering selling shares, property or other investments, reviewing timing before April the 5th may influence the use of your Capital Gains Tax annual exemption.

For business owners beginning to consider succession or eventual sale, year end can act as a planning checkpoint. In some cases, Business Asset Disposal Relief may be relevant, and rates and conditions can change over time.

However, accelerating disposals purely to use an exemption can disrupt longer-term strategy. Tax efficiency should support business objectives, not dictate them.

Capital Allowances and Planned Investment

Where capital expenditure is already planned, completing purchases before April the 5th may allow the use of available capital allowances within the current accounting period.

Allowances such as the Annual Investment Allowance or First-Year Allowances can influence timing decisions. However, commercial viability should remain the primary driver. Investment decisions made purely for tax reasons rarely represent optimal long-term strategy.

Making Tax Digital from April the 6th 2026

One of the more significant administrative changes on the horizon is Making Tax Digital for Income Tax.

From April the 6th 2026, self-employed individuals and landlords with qualifying income above £50,000 are expected to be required to maintain digital records and submit quarterly updates to HMRC using compatible software.

Although this requirement formally begins in the next tax year, reviewing income levels and record-keeping systems now can help ensure a smoother transition. For business owners whose income is near or above the threshold, early preparation can reduce operational disruption.

This is not simply a compliance issue. Improved digital record keeping can also enhance cashflow visibility and financial oversight.

Use It or Review It?

Technically, many allowances operate on a use-within-the-tax-year basis. Once April the 5th passes, unused allowances are generally lost.

However, using an allowance simply because it is available can create unintended strain on liquidity or long-term planning.

Before acting, it is helpful to consider:

• Does this decision strengthen both my business and personal financial position?

• Is it sustainable for the company’s cashflow?

• Does it align with aspects of exit or retirement strategy planning?

  
  

A review is often more powerful than a reaction.

A Structured Approach to Year-End Planning

Tax year end can feel operationally busy for business owners. Yet it doesn’t need to feel pressured.

A calm, structured review before April the 5th enables allowances to be used deliberately where appropriate, rather than instinctively.

At Oakmere Wealth, we focus on integrating business and personal financial planning so that decisions made at year end support long-term objectives rather than short-term optimisation alone.

If you would like a structured discussion about how tax year end decisions align with your wider strategy, we would be pleased to arrange a conversation.

Frequently Asked Questions: Tax Year End Planning for Business Owners

Should business owners use all tax allowances before 5 April 2026?

Business owners are not required to use every available allowance before 5 April 2026.

While many allowances operate on a “use within the tax year” basis, acting solely to avoid losing them can result in reactive decisions.

The more appropriate approach is to review which allowances are relevant and whether using them supports both business stability and personal financial objectives.

What should directors review before the end of the 2025/26 tax year?

Before the end of the 2025/26 tax year, directors may wish to review their salary and dividend structure, pension contributions, dividend income levels, potential capital gains, capital expenditure plans and preparedness for Making Tax Digital.

The objective of this review is alignment between business decisions and personal financial planning, rather than short-term optimisation.

How does the £500 dividend allowance affect business owners?

The dividend allowance for the 2025/26 tax year is £500. Dividend income above this threshold is taxed according to the individual’s income tax band.

For directors, dividend planning should consider total taxable income, interaction with higher and additional rate bands, and whether income falls within the £100,000 to £125,140 range where the Personal Allowance is gradually withdrawn.

Declaring additional dividends without understanding these interactions may lead to higher effective tax rates.

Why is the £100,000 to £125,140 income band important for directors?

Income between £100,000 and £125,140 is significant because the Personal Allowance is tapered away within this range. For every £2 of income above £100,000, £1 of Personal Allowance is lost.

This can create an effective marginal tax rate of up to 60 percent. Business owners considering additional dividends or bonuses before 5 April should understand how this income band may affect their overall tax position. The effect of this is that for every £100 of income between £100,000 and £125,140, an individual only gets to take £40 home - £40 is deducted in income tax, while another £40 is lost by the tapering of the personal allowance (i.e £50 of lost PA, taxed by £4050 which effectively amounts to a 60% tax rate on income within this range.

Are employer pension contributions tax-efficient for business owners?

Employer pension contributions can be tax-efficient for business owners because they are often treated as an allowable business expense, potentially reducing corporation tax.

The standard pension annual allowance is £60,000 for the 2025/26 tax year, may be subject to tapering rules for higher income individuals. Unused allowance from the previous three tax years may be available if conditions are met.

However, pension contributions should reflect company cash reserves, future investment needs, personal retirement objectives and exit strategy considerations. Contributions should form part of a structured long-term plan rather than being driven solely by tax year end timing.

Should business owners realise capital gains before 5 April?

If business owners are already planning to dispose of shares, property or other assets, reviewing the timing before 5 April may allow use of the Capital Gains Tax annual exemption.

However, accelerating disposals purely to use an exemption can disrupt longer-term strategy. Tax efficiency should support commercial and personal objectives rather than dictate them.

Can completing capital expenditure before year end reduce tax?

Where capital expenditure is already commercially planned, completing purchases before year end may allow available capital allowances, such as the Annual Investment Allowance or First-Year Allowances, to be used in the current accounting period.

However, investment decisions should always be commercially justified. Purchasing assets purely to achieve a tax deduction rarely represents optimal long-term strategy.

What is Making Tax Digital and how does it affect business owners from April 2026?

From 6 April 2026, Making Tax Digital for Income Tax is expected to apply to self-employed individuals and landlords with qualifying income above £50,000.

Those affected will be required to maintain digital records and submit quarterly updates to HMRC using compatible software. Reviewing systems and income thresholds ahead of implementation can help ensure a smoother transition and minimise operational disruption.

Are there changes coming in the 2026/27 tax year that business owners should consider?

While the focus before 5 April is on reviewing the current tax year, business owners should remain aware of confirmed legislative changes taking effect from 6 April 2026.

These may include adjustments to dividend taxation, changes to Business Asset Disposal Relief, updates to capital allowance rules and the implementation of Making Tax Digital requirements.

Understanding upcoming changes helps ensure that March decisions are informed by what lies ahead, not solely by the year closing.

Is tax year end about using allowances or reviewing them?

Although many allowances reset on 5 April, tax year end is often more valuable as a review point rather than a deadline for action.

Before using an allowance, it is sensible to consider whether the decision strengthens both the company and personal financial position, whether it is sustainable for business cashflow, and whether it aligns with long-term retirement or aspects of exit strategy planning.

In many cases, a structured review is more powerful than a reactive decision.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

SJP Approved: 27/03/2026