New Business Tax Planning – 2026/27 Guide
Planning ahead of the 2026/27 financial year is one of the most effective ways to reduce tax, improve cash flow, and avoid surprises. With frozen thresholds, increasing dividend tax rates, and the introduction of Making Tax Digital (MTD), proactive planning is more important than ever.
This guide brings together key points from current guidance and aligns them with the 2026/27 tax year.
Why Tax Planning Matters in 2026/27
The tax system is becoming tighter:
- Personal allowances remain frozen at £12,570
- More income is pulled into higher tax bands over time
- Dividend tax rates increase from April 2026
- MTD for Income Tax begins for many businesses
Small decisions made before or early in the tax year can have a meaningful impact on overall tax liabilities and cash flow
1. Choosing the Right Business Structure
For new businesses, the first key decision is structure:
Sole Trader
- Simple setup and lower admin
- Profits taxed as personal income
- Less flexibility for tax planning
Limited Company
- Pays Corporation Tax (19%–25%)
- Allows salary, dividends, and pension planning
- More admin but greater tax efficiency as profits grow
A limited company often becomes more efficient once profits exceed £50,000–£60,000
2. Corporation Tax and Profit Planning
For 2026/27:
- £0–£50,000 → 19%
- £50,001–£250,000 → marginal relief (effective rate up to ~26.5%)
- £250,000+ → 25%
Key planning points:
- Maximise allowable expenses
- Time purchases (capital allowances)
- Monitor profit levels around £50k threshold
Timing is important — small changes can keep profits in lower tax bands
3. Salary vs Dividends Strategy
Dividend tax increases in 2026/27:
- Basic rate: 10.75%
- Higher rate: 35.75%
Dividend allowance remains £500.
Planning considerations:
- Review salary level (often around NI thresholds)
- Balance salary vs dividends for tax efficiency
- Consider taking dividends before rate increases where appropriate
There is no single “best” mix — it depends on profits, other income, and goals
4. Pension Contributions – A Key Opportunity
Pensions remain one of the most tax-efficient tools:
- Corporation tax deductible (if paid by company)
- No Income Tax or National Insurance on contribution
- Annual allowance typically £60,000
For many business owners, pensions reduce both company and personal tax at the same time
5. Capital Allowances and Investment
If you are investing in your business:
- Annual Investment Allowance: £1,000,000
- Full expensing available on qualifying assets
- 100% relief often available in year of purchase
Planning opportunity:
- Bring forward purchases to reduce taxable profit
- Or delay to smooth profits across years
This is particularly useful where profits are close to tax thresholds
6. Directors’ Loan Accounts (DLA)
If you take money from your company:
- Overdrawn DLA can trigger tax (33.75% rising to 35.75%)
- Applies if not repaid within 9 months
Planning options:
- Clear via dividends
- Repay before deadline
- Avoid building up large balances
Poor management of DLAs is a common and costly mistake
7. Making Tax Digital (MTD) – From April 2026
From April 2026:
- Applies to individuals with income over £50,000
- Requires digital records
- 4 quarterly submissions + 1 final declaration
Key impact:
- More admin
- More frequent reporting
- Greater need for good bookkeeping systems
Planning early reduces disruption and cost
8. Personal Tax Planning
Important areas to review:
- Personal Allowance remains £12,570
- 60% effective tax rate between £100k–£125k
- Dividend allowance reduced to £500
Planning actions:
- Use pension contributions to reduce income
- Consider Gift Aid to manage thresholds
- Plan income timing across tax years
9. Common Mistakes to Avoid
- Leaving planning until after 5 April
- Taking dividends without checking profits
- Ignoring pension opportunities
- Poor record keeping
- Not setting aside funds for tax
Tax planning is most effective when done early, not after the year end.
10. Key Takeaway
For 2026/27:
- Tax rates are increasing in key areas
- Thresholds remain frozen
- Compliance is increasing (MTD)
The businesses that plan early will:
- Pay less tax
- Have better cash flow
- Avoid last-minute pressure
How GMS Business Accountants Can Help
At GMS, the approach is simple:
- Clear advice
- Practical planning
- No jargon
Support includes:
- Tax planning and forecasting
- Salary and dividend reviews
- Capital allowance planning
- MTD preparation
- Ongoing support throughout the year
Compliance is essential. Planning is where real value is created.
Disclaimer
This blog is for general guidance only and does not constitute personalised advice. Tax rules may change and individual circumstances vary.
