Why Using Your Tax Allowances Properly Can Save You Thousands
Some of the biggest tax savings available to business owners are not hidden loopholes or clever tricks. They come from allowances that already exist.
The problem is most people do not use them properly. Or worse, they think about them too late.
Every tax year gives you opportunities to reduce tax legally, build long term wealth, and plan smarter. Once the tax year ends, anything you have not used is gone for good. There are no carry backs and no second chances.
That is why planning before April 2026 matters.
Why Allowances Matter More Than You Think
Allowances are designed to reduce how much tax you pay. They sit quietly in the background of the tax system, but when used properly they can make a significant difference to your overall position.
The key thing to understand is that allowances rarely work well in isolation. The real savings come from how they are combined and timed.
This is where most business owners miss out.
Personal Allowance and Salary Structure
Your personal allowance is the amount you can earn before paying income tax. For company directors, how you use this allowance depends on how you structure your salary.
A well planned salary ensures:
You use your personal allowance efficiently
You stay tax efficient with National Insurance
You protect entitlement to state benefits
Getting this wrong can mean paying more tax than necessary or missing out on allowances altogether.
Dividend Planning
Dividends are a common way for company owners to take money out of their business, but timing and structure matter.
Dividend planning looks at:
How much dividend to take
When to take it
How it fits with your salary and other income
Whether your partner or spouse can be involved
How it affects your overall tax bands
Leaving this until your tax return is due often means the opportunity to plan has already passed.
Pension Contributions
Pensions are one of the most powerful tax planning tools available.
Contributions can reduce corporation tax or personal tax while building long term wealth outside of your business. For many directors, pension planning is one of the most underused allowances available.
The key is knowing:
How much you can contribute
Whether the contribution should come from the company or personally
How it fits into your wider tax strategy
Capital Gains Timing
If you are planning to sell assets, shares, or investments, timing can make a big difference to how much tax you pay.
Capital gains allowances reset each tax year. Planning disposals carefully can help:
Use allowances efficiently
Spread gains across tax years
Avoid pushing yourself into higher tax rates
Once the tax year ends, missed opportunities cannot be recovered.
ISA Investing
ISAs are not just for employees. Business owners can use them to build tax free savings and investments alongside their business.
ISA planning works best when it is part of a wider strategy that considers:
Cash reserves
Personal income needs
Long term wealth planning
Business reinvestment
It is another example of an allowance that works best when joined up with everything else.
Small Trading Income Allowances
If you have additional income streams alongside your main business, such as side projects or small trading activities, there may be allowances available to reduce tax.
These need to be reviewed carefully to ensure they are used correctly and do not create unexpected tax issues elsewhere.
Why Timing Is Everything
The biggest mistake business owners make is waiting until their tax return is due.
By that point:
The tax year has ended
Most allowances are already lost
Planning options are limited
You are reacting instead of deciding
Good tax planning happens before the year end, not after it.
The Bottom Line
Tax allowances can save you a significant amount of money, but only if you use them properly and on time.
The real benefit comes from joining the dots between your salary, dividends, pensions, investments, and long term goals. This is not something that works well with last minute decisions.
If you want help reviewing your position before April 2026 and making sure you are not leaving money on the table, drop us a message or book a complimentary consultation. We will help you plan ahead and make the most of the allowances available to you.
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.
