Dividend and director loan planning

Dividend timing

Dividend tax rates will increase by 2% from 6 April 2026 for ordinary and higher rate taxpayers, moving to 10.75% and 35.75% respectively; the additional rate remains 39.35%. Therefore, there should be genuine consideration given to bringing planned dividends forward into 2025–26 to reduce the overall tax bill for ordinary and higher rate taxpayers. This will be dependent on both the cash and reserves position of the company.

Director loan accounts

The s455 charge on overdrawn director loan accounts applies if a loan remains outstanding nine months and one day after the company year end, with a small number of exceptions such as loans made in the ordinary course of a company's business or small loans (under £10,000). The rate is increasing to 35.75% from 6 April 2026 making overdrawn loans more expensive in the short term. The charge can be reclaimed once the loan has been repaid or released by the company. Despite the increased s455 charge, if the long term plan is for the loan to be repaid, and the receiver of the funds is an additional rate tax payer then there remains a benefit to keeping a loan account overdrawn.

Pension salary sacrifice changes

From April 2029 pension contributions benefiting from National Insurance savings via salary sacrifice will be capped at £2,000 per employee per year. Tax relief on pension contributions is unchanged, but the NIC advantage for higher earners will be reduced.

Employees earning below £40,000 are unlikely to be affected, and mandatory auto-enrolment contributions should remain within the new threshold. However, employees earning over £40,000 will notice a reduction in the monthly contribution to their pension pot.

Now is the time for employers to consider encouraging greater participation in a salary sacrifice scheme before the cap applies, increasing NIC saving over the next two years.

WDA allowance changes

From 1 April 2026, the main writing down allowance (WDA) rate falls from 18% to 14%. This raises the effective tax cost for businesses with significant main pool balances where expenditure does not qualify for immediate relief. For accounting periods spanning April 2026 a blended rate will apply based on days before and after the change.

Where possible companies should consider timing expenditure or bring expenditure forward that qualifies for main pool writing down allowances, so the favourable 18% WDA is achieved.

Enterprise Management Incentive changes

From 6 April 2026 the Enterprise Management Incentive (EMI) scheme is expanding to help more growing companies offer tax-efficient share incentives.

Key changes

• Gross assets limit increases from £30m to £120m
  
• Employee headcount limit rises from 250 to 500
  
• Unexercised EMI options increase from £3m to £6m
  
• Exercise period extends to 15 years from grant (up from 10 years)
  
• No requirement to report grants to HMRC

Companies should consider whether existing EMI options can now benefit from the 15-year window or whether companies which previously did not qualify for EMI can now implement a scheme.

Research and Development tax relief

For accounting periods beginning on or after 1 April 2024, a new merged R&D scheme applies. This provides a taxable 'expenditure credit' of 20% on qualifying R&D costs. For a company paying corporation tax at the main rate of 25%, this results in a net cash benefit of 15% of the qualifying expenditure.

To qualify for the relief the R&D activities must be attempting to overcome scientific or technological barriers, and the work must be undertaken by professionals within the required field.

If a company has not made a R&D claim in the last 3 years an advance notification needs to be filed with HMRC within 6 months of the company year end, allowing for a R&D claim to be submitted with the company corporation tax return.

Other planning points

Bad debts

If the company is aware a customer will not pay for services invoiced a bad debt can be provided before year end, allowing a reduction to the company’s taxable profits and therefore a reduction in the tax the company will pay based on the profits for the coming year end. Companies should look to review the debtors ledger and provide for any bad debts, ensuring evidence is maintained to collaborate the debt was irrecoverable at year end.

Stock

Specific provisions can be made for slow-moving, damaged or obsolete stock. These specific stock provisions are allowable for corporation tax purposes and will reduce taxable profits allowing for a reduction of the corporation tax liability the company pays nine months post year end. Companies should ensure they are able to evidence stock is slow-moving, damaged or obsolete.

Bonuses

A constructive obligation exists if a bonus is based on the performance of the current period and the bonus is communicated to employees before the year end. This constructive obligation allows the bonus to be recognised in the company financial statements as at 31 March 2026, reducing taxable profits.

Bonuses accrued at year end need to be paid within nine months of year end for the corporation tax deduction to apply.

The longer term

FRS 102 lease accounting changes

For accounting periods beginning on or after 1 January 2026, companies applying FRS 102 will adopt a new lease accounting model. Operating leases will be recognised on the balance sheet as right of use (ROU) assets and lease liabilities, replacing straight-line rental charges. Transition may require one-off adjustments to opening balances.

This will not affect the financial statements for the year ending 31 March 2026, as standards allow for a modified retrospective adoption approach, meaning comparatives will not need to change. However, the opening position will need to be reflected in the company balance sheet as at 1 April 2026, and therefore to keep management information accurate this information should be compiled as close to 31 March 2026 as possible.

For more information on the upcoming FRS 102 changes please see our previous article:  https://rickardluckin.co.uk/news/impact-of-FRS102-amendments-on-accounting-for-leases