If you’re self-employed, seize the chance before the end of the tax year to claim expenses, make the most of pension tax relief and stash cash where the taxman can’t touch it.
The clock is ticking down until allowances reset after 5 April, but there’s still time to shrink your tax bill and pocket more of your profits.
1. Work out income and expenses
Start by adding up all the income you have received and the money spent on allowable expenses. This can also help spot any unpaid invoices you need to chase, and track down expense receipts. Once you’ve worked out your profit for the year, you can plan how to make the most of the money.
2. Tot up your taxes
Make sure you’ve set aside enough money to cover any tax due for the 2025/26 tax year that ends on 5 April. Depending on your turnover for the previous 2024/25 tax year, you may have to make a payment on account before the end of July, in addition to any tax bill at the end of January.
Planning ahead for tax payments will bring peace of mind, and avoid any panic when the bills are due. Plus, if you pop the money in a high interest savings account, you could earn some interest on top.
3. Bump up pension payments
If you can afford to, increasing your pension contributions can help slash your tax bills and boost your retirement savings at the same time. Plus, once you put money inside a pension, you won’t have to pay any Income Tax, Dividend Tax or Capital Gains Tax (CGT) on the returns, and 25% of any withdrawals are tax-free (from the age of 55, rising to 57 from 2028 and up to a maximum of £268,275).
As a sole trader, for every £1 you pay into a pension, you automatically get 25p added in basic rate tax relief. If you’re a higher rate or additional rate taxpayer, you can claim another 25p or 31p respectively in tax relief via your Self-Assessment tax return, bringing down your tax bills.
Most people can put a maximum of 100% of their earnings during the tax year into a pension while still getting tax relief - this is capped at £60,000 a year (2025/26).
If you have a limited company, you can make employer contributions into a pension. These count as business expenses that can be deducted from your profits, potentially saving up to 25% in Corporation Tax.
The drawback to most pensions is that your contributions get locked away until you reach 55 (rising to 57 from 2028), which isn’t ideal if you get hit by unexpected bills or need to invest in your business.
By checking your profits towards the end of the tax year, you can work out how much you can afford to pay into your pension.
4. Claim expenses and buy equipment
Every penny you claim in allowable expenses will reduce your profits, and therefore cut your tax bill. So, if for example you have equipment that needs replacing or upgrading, consider buying it before the end of the tax year, so you can deduct the cost.
Under the annual investment allowance (AIA) for example, you can claim tax relief on qualifying plant and machinery, such as tools, computers and commercial vehicles but not cars. You can deduct the full cost worth up to £1 million from your profits in the year you bought it, rather than having to spread the cost over several years. The AIA can be used by sole traders as well as limited companies.
Make sure you meet the small print - for example, business equipment must be ‘wholly and exclusively’ for the purposes of your business, and something that you do actually need, whether right now or soon.
Then identify other allowable expenses you could claim, such as software subscriptions, professional indemnity insurance, any uniform or other clothing required specifically for your work or membership fees. Sadly, you can’t claim for all memberships (gym, anyone?) only for professional bodies listed by HM Revenue & Customs (HMRC).
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5. Use your ISA allowance
Alternatively, Individual Savings Accounts (ISAs) offer more flexibility, which can be handy if you might need to whip money out.
Currently, you can put up to £20,000 each tax year in ISAs (2025/26), whether as cash savings or invested in stocks and shares, and make withdrawals whenever you want. As with pensions, any returns on money inside ISAs are tax-free.
If you want to take advantage of your ISA allowance, you need to do it soon, because this is a ‘use it or lose it’ situation. ISA allowances can’t be carried over. However, as of 6 April, you’ll be able to use next year’s (2026/27) ISA allowance.
If you’re under 40, you can divert up to £4,000 of your ISA allowance each tax year into a Lifetime ISA (LISA), where the government will add a 25% bonus, up to a maximum of £1,000.
LISAs do have strings attached. You can only take money out to buy a first home for under £450,000 or after the age of 60. Otherwise, you’ll have to pay a 25% penalty, which works out as larger than the original government bonus.
LISAs can work well for retirement saving if you’re self-employed and a basic rate taxpayer, because you won’t miss out on higher rates of tax relief, but you have the flexibility to make withdrawals if really needed, albeit with a 25% penalty.
6. Consider donating to charity
Feeling generous? If you donate to charity as a taxpayer, and sign a Gift Aid declaration, the good cause can claim basic rate tax relief.
The advantage to higher rate and additional rate taxpayers is that, as with pensions, you can claim extra tax relief through your tax return and so cut your tax bill.
7. Mop up miscellaneous tax allowances
And finally, it’s worth checking whether you can also take advantage of any other tax allowances before the tax year ends.
- Personal Allowance - you can earn £12,570 per year before paying tax.
- Trading Allowance - you can earn £1,000 per year before paying tax for self-employment, hiring personal equipment or for casual services.
- Property Allowance - you can earn £1,000 per year in income from property before paying tax.
- Dividend Allowance - you can earn £500 in dividends per year before paying dividend tax.
- Personal Savings Allowance - you can earn £500 (basic rate tax payers) or £1,000 (higher rate taxpayers) in interest per year before paying tax.
- Marriage Allowance - you can transfer up to £1,260 of your Personal Allowance to your spouse or civil partner each tax year.
- Tax-free Childcare - you could get up to £2,000 per year in government top ups.
- Junior ISA - you can save up to £9,000 into a Junior ISA a year per child.
- Capital Gains Tax Allowance - you can earn £3,000 in capital gains per year before paying tax.
- Inheritance Tax (IHT) annual exemption - you can give away up to *£3,000 per year in ‘gifts’ without it being added to your estate and therefore subject to IHT.
*The rules around IHT and gifts are complex. For more details, visit GOV.UK.
Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith and Lynn’s videos about spending during lockdown and after lockdown.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Period | Market Event | FTSE World TR GBP (%) | 4Plus Plan (%) |
|---|---|---|---|
4Plus Plan’s inception – 6 Sept 2013 | QE Tapering, China Interbank Crisis and its aftermath | -5.44 | -2.41 |
3 Oct 2014 – 15 May 2015 | Oil price drop, Eurozone deflation fears & Greek election outcome | -5.87 | -1.77 |
7 Jan 2016 – 14 Mar 2016 | China’s currency policy turmoil, collapse in oil prices and weak US activity | -7.26 | -1.54 |
15 June 2016 – 30 June 2016 | BREXIT referendum | -2.05 | -1.07 |
