What year-end tax planning actually changes at this profit level
At profits above 150,000 pounds, year-end planning stops being about squeezing a few pounds and starts being about which lever you pull before the door closes. You are past the personal allowance, which disappears entirely once income reaches 125,140 pounds, and most of your income sits in the higher or additional rate band, so the difference between a well-timed pension contribution and another dividend can be several thousand pounds in a single year. The moves themselves are not exotic. What matters is doing them before 5 April 2027 for anything personal, and before the company's own year end for anything the company pays.
The honest version is that there is no single trick. A higher-profit owner usually has three or four levers worth pulling at once: the pension, the order in which salary and dividends come out, the allowances that reset each April, and the timing of company costs. Pulled together they compound. Pulled late, in the last week of March, half of them are already gone. This is the sort of planning LOYALS, a King's Cross firm of accountants and business consultants, builds into the tax planning advisory work we do for owner-managed companies across London, so the framing below is the decision an owner has to make, not a rate table.
One caution before the detail: everything here assumes real commercial decisions, not paper ones. HMRC looks through arrangements that exist only to move a number, so a bonus has to be a genuine reward, a pension contribution has to be commercially justifiable, and a dividend has to come out of distributable profit with the paperwork done. Within those lines there is plenty to do.
How much more do dividends cost from April 2026?
Dividends got more expensive this year. From 6 April 2026 the ordinary dividend rate rose to 10.75 percent, the upper rate to 35.75 percent, and the additional rate held at 39.35 percent, a 2 percentage point rise across the lower two bands under the government's changes to dividend tax rates. The 500 pound dividend allowance is unchanged, which for a higher-profit owner is a rounding error against the rate.
Put a number on it. On 40,000 pounds of dividends taxed in the higher band, above the 500 pound allowance, the tax is about 14,121 pounds for 2026/27, against roughly 13,331 pounds a year earlier. That is around 790 pounds more for taking the same money the same way. It is not a disaster, but it is a signal: the gap between dividends and the alternatives has widened, and an extraction plan built two or three years ago is now leaving money on the table.
For most higher-profit owners the dividend is still part of the answer, because you usually need some of the money in your own hands. The point is not to abandon dividends, it is to stop treating them as the default for every last pound of profit. Once the rate is 35.75 or 39.35 percent, the pension starts to look very attractive for the slice of profit you do not need to spend.
Should I take more dividends or pay into a pension before 5 April?
For most higher or additional rate owners, if you do not need the money personally in the next few years, an employer pension contribution beats another dividend. The company pays it, the contribution is deductible against corporation tax, there is no national insurance, and no dividend tax falls due now. A dividend wins only when you need the cash in your own hands, where the choice is really between paying the dividend tax now or leaving the profit in the company for later. That is the position LOYALS takes with owners who have surplus profit and no near-term need for it, and it flips the moment a house deposit, a tax bill or a personal cost means the money has to come out.
The room is usually bigger than owners think. The pension annual allowance is 60,000 pounds for 2026/27, and HMRC's pension scheme rates taper that down for the highest incomes, by one pound for every two pounds of adjusted income over 260,000 pounds, to a floor of 10,000 pounds once adjusted income reaches 360,000 pounds. Crucially, unused allowance from the three previous tax years can often be carried forward, so an owner who has not been contributing may have well over 100,000 pounds of room available in one go. An employer contribution is not restricted by your salary the way a personal one is, which is why it is the usual route from a company.
It helps to see what each route leaves you. Take 10,000 pounds of company profit. Drawn as a dividend, after corporation tax at the 26.5 percent marginal rate and dividend tax at 35.75 percent, you keep about 4,722 pounds. Paid as salary or a bonus, after employer and employee national insurance and 40 percent income tax, you keep about 5,043 pounds. Paid as an employer pension contribution, the full 10,000 pounds goes into your pension with corporation tax relief and no national insurance, though it is money for later rather than cash today, and normally a quarter of it comes out tax free when you draw it.
Which allowances will I lose if I do not use them by 5 April 2027?
Three personal allowances vanish on 5 April 2027 if they are unused, and none of them carries over. The capital gains annual exempt amount is 3,000 pounds for 2026/27, confirmed in HMRC's capital gains rates and allowances, so a gain you were going to take anyway is worth crystallising before year end to use it, and a couple can use one each. The ISA allowance is 20,000 pounds, sheltering future growth and income from tax for good. The dividend allowance is 500 pounds, small but free.
Pension annual allowance is the one exception to the use-it-or-lose-it rule, because carry forward lets you use unused room from the previous three years, as above. There is also a specific reason to favour a cash ISA this year: from April 2027 the cash ISA limit for savers under 65 is set to fall to 12,000 pounds within an unchanged 20,000 pound overall ISA allowance, announced at the Autumn Budget 2025, so a full cash subscription is simpler to make this year than next. If you were going to hold cash in an ISA, this is the year to fill it.
Capital gains is worth a second look for owners thinking about a sale. For disposals on or after 6 April 2026 the main rates are 18 and 24 percent, and Business Asset Disposal Relief, the relief that can apply when you sell your company, rose to 18 percent with a 1 million pound lifetime limit. If an exit is anywhere on your horizon, the relief and its limit shape when and how you sell, and that is a planning conversation rather than a year-end tick box.
Can I still cut the company's corporation tax before its year end?
Yes, for genuine business spending timed before the company's accounting year end, which is usually not 5 April. An employer pension contribution paid before the year end is deductible in that year. Equipment bought and brought into use can attract the annual investment allowance of up to 1 million pounds, so a capital purchase you were going to make anyway is often worth pulling forward a few weeks. A genuine bonus, or a cost you can legitimately incur now rather than next quarter, moves the deduction into the current year. None of this is aggressive; it is matching real spending to the right period.
The trap at this profit level is associated companies. Every company you or your family control divides the 50,000 pound and 250,000 pound corporation tax thresholds between them, which can push more of your profit into the marginal band taxed at an effective 26.5 percent. If you have picked up a second company, a property company or a dormant one that is not truly dormant, your thresholds may already be smaller than you think, and that interacts with every extraction decision above. It is covered in more depth in our guide to which companies count as associated, and it is the reason a year-end review is really a whole-structure review.
What is changing after this year that I should plan for now?
A few announced changes sit just beyond 2026/27 and are worth building into a plan now rather than reacting to later. From 6 April 2027 the tax rates on savings and property income rise by 2 percentage points, so a landlord or an owner with investment income will pay more, which strengthens the case for sheltering income inside pensions and ISAs this year while the rates are lower.
The cash ISA change from April 2027 is the second, covered above. The third, further out, is the reform of salary sacrifice for pensions from April 2029, which brings employee pension contributions above 2,000 pounds a year made by salary sacrifice within national insurance. That is three years away and only affects salary sacrifice arrangements, but if you run one for yourself or your team it belongs on the list of things to revisit, not to panic about. For an owner taking an employer contribution straight from the company rather than by salary sacrifice, it changes nothing now.
What this means for you: your year-end checklist
If you take one thing from this, it is that the pension is usually the strongest lever for a higher-profit owner who does not need the cash, and that the allowances reset whether you use them or not. Here is the short list to work through before the year closes.
- Decide the extraction mix first. Work out how much you actually need personally this year, then weigh the rest between a dividend and an employer pension contribution rather than defaulting to dividends.
- Use the pension room, including carry forward. Check the last three years for unused annual allowance, and time any employer contribution before the company year end so it lands in the right period.
- Spend the allowances that lapse. Use the 3,000 pound capital gains exemption, the 20,000 pound ISA allowance and the 500 pound dividend allowance before 5 April 2027, and favour a cash ISA this year.
- Time company costs. Bring forward a genuine equipment purchase or cost where it makes commercial sense, to pull the deduction into the current corporation tax period.
- Count your associated companies. Make sure a second or dormant company is not quietly shrinking your corporation tax thresholds before you finalise anything.
Done in good time, these moves compound into a materially smaller bill without a single aggressive step. Done in the last week of March, half of them are closed. If you want a second pair of eyes before 5 April, that is exactly what a year-end review is for. LOYALS is a King's Cross firm of accountants and business consultants that plans year-end tax, profit extraction and corporation tax for higher-profit owners across London, and we would rather tell you which levers are worth pulling than watch you repeat last year by default.