With the tax year-end approaching, company directors still have a short window to review their position and take action. This week’s blog outlines what to focus on before 5 April.
Why this week matters
For company directors, the final full week before the tax year ends is often one of the most important points in the calendar. There is still time to make adjustments, but not much. That makes this the moment for a focused review rather than broad intentions.
Directors often have more moving parts than other taxpayers. Salary, dividends, pension contributions, benefits, expenses and director’s loan accounts can all interact. If these are not reviewed before 5 April, opportunities may be lost and avoidable problems may carry forward.
Once the tax year closes, many planning options close with it. That does not mean every opportunity disappears overnight, but it does mean the chance to influence your 2025/26 position becomes much more limited.
For directors, this week matters because:
- salary planning may still be adjusted
- dividends may still be declared if lawful and appropriate
- pension contributions may still be paid
- benefits and expenses can still be reviewed
- allowance usage can still be checked
It is also worth remembering that a number of key allowances, particularly the dividend allowance and CGT annual exemption, have reduced significantly in recent years. That makes it even more important that what remains is used efficiently.
The closer you get to 5 April, the harder it becomes to do this properly. Documents need to be prepared, payments need to clear, and records need to support whatever action is taken.
Review your salary position
The first area to check is salary. Many directors take a low salary combined with dividends, but the correct level depends on the wider tax picture and should not simply be copied from a previous year without thought.
Questions worth asking include:
- has the salary level been set deliberately this year?
- has payroll been run correctly?
- are there any final adjustments to make before year-end?
- is the current approach still aligned with the wider extraction strategy?
Salary decisions can affect National Insurance, pension planning, and the company’s corporation tax position. A review now can confirm whether the approach taken has done the job it was meant to do.
Check whether dividends need attention
Dividends remain central to many directors’ extraction strategies, but they are often treated too casually.
A key technical point is that distributable reserves are assessed at the point the dividend is declared, not when it is paid. This means the company must have sufficient reserves at the time of declaration, supported by appropriate accounts or management information.
Before year-end, check:
- whether dividends have already been taken but not formally documented
- whether further dividends are appropriate
- whether the shareholder’s personal tax position supports another dividend before 5 April
- whether sufficient distributable reserves exist at the point of declaration
With the dividend allowance now significantly reduced compared to previous years, the margin for inefficiency is much smaller. Timing and documentation both matter.
Review the director’s loan account
The director’s loan account is one of the most common problem areas in owner-managed companies. Informal drawings, personal spending through the company, or unclear bookkeeping can quickly lead to an overdrawn position.
Before the year ends, review:
- whether the account is overdrawn
- whether transactions have been posted correctly
- whether any repayment is needed
- whether drawings should be reclassified as salary or dividends
There are two key tax risks to keep in mind:
The 9-month rule
If the loan remains outstanding 9 months after the company’s year-end, the company may face a tax charge. While this sits after 5 April for many companies, decisions taken now can directly affect that future exposure.
Beneficial loan benefit-in-kind
If the director has an overdrawn loan account exceeding £10,000 at any point in the tax year, including at 5 April, a benefit-in-kind may arise if interest is not charged at HMRC’s official rate.
A review this week can prevent both unnecessary tax charges and reporting complications later.
Consider pension contributions
Employer pension contributions remain one of the most tax-efficient ways to extract value from a company.
This week is a good time to consider:
- whether the company has sufficient profits to support a contribution
- whether the contribution fits within the overall remuneration plan
- whether the payment can be made before year-end
- whether unused allowances from prior years are available
Carry forward can allow unused pension annual allowance from the previous three tax years to be utilised, provided conditions are met. Carry forward is only available where you were a member of a registered pension scheme in those earlier years.
However, for higher earning directors, this needs to be balanced with tapering of the annual allowance, which can significantly reduce the amount that can be contributed tax efficiently.
Pension planning at this stage is often one of the most valuable actions available, but also one of the areas where getting the detail wrong can be costly.
Review expenses and benefits
It is easy for benefits and reimbursable expenses to receive less attention during the year than salary and dividends. But they still matter.
This week, check:
- whether all allowable business expenses have been reimbursed or recorded
- whether any private costs have passed through the company incorrectly
- whether benefits such as company cars, medical cover or other perks have been tracked properly
- whether records are clear enough for year-end reporting
This is as much about avoiding future issues as it is about current tax efficiency.
Use allowances before they are lost
Directors often have access to a range of allowances, but these do not always get used efficiently unless actively reviewed.
Depending on your position, that may include:
- personal allowance
- dividend allowance, now much reduced
- pension annual allowance, including carry forward
- capital gains annual exemption, also reduced in recent years
- spouse planning where relevant
The reduction in these allowances over time means that missed opportunities now have a more immediate cost than they once did.
Do not forget the company’s wider position
Although this is a director-focused review, the company’s own position still matters.
That means checking:
- whether the business can support any planned extraction
- whether profits are being retained appropriately
- whether payroll and bookkeeping are up to date
- whether board minutes and documentation support decisions taken
Good planning is coordinated. It should not feel like a last-minute adjustment layered onto incomplete records.
Example
A director has taken regular drawings during the year but has not clearly separated what was salary, what was dividend and what sits on the loan account.
A year-end review shows:
- dividends were intended but not formally declared
- distributable reserves are sufficient, but only if documented correctly now
- the director’s loan account is overdrawn and may trigger a benefit-in-kind
- there is unused pension allowance available, including carry forward
By acting before 5 April, the director is able to:
- formalise dividends at the correct point in time
- reduce the loan account exposure
- make a pension contribution within available allowances
- avoid unnecessary tax charges and reporting issues
What directors should do this week
This week, directors should aim to:
- review salary
- check dividend paperwork and reserves
- review the director’s loan account, including tax exposure
- consider pension contributions and available allowances
- check benefits and expenses
- confirm allowances are not being wasted
- ensure records support all actions taken
The key is not to do everything, but to do the right things properly and in time.
Key Point
For company directors, the final full week before the tax year ends is the moment to review salary, dividends, pension contributions and director’s loan accounts in detail. With reduced allowances and increasing complexity, small missed steps can now have a larger tax impact, but a focused review now can still make a meaningful difference.
Final Thought
A quote from our Principal, Sunil Aggarwal:
The best time to review your position is before the year ends, not after. It does not need to be complicated, but it does need to happen.
For most directors, the value is not in doing more, but in doing the right things at the right time. A clear, well-timed review can ensure your decisions are aligned, your position is understood, and nothing important is left to chance.
Deliberate. Reliable. Straightforward.
If you would like to review and discuss your position, please get in touch.
You can:
- Email: info@drs-tax.com
- Telephone: 020 8059 1891
- Submit an enquiry via our Contact Us page
You can also book a free 15-minute consultation to review your position and next steps.