Running a limited company means your tax position changes every year. New thresholds, shifting personal circumstances, changes to how you use contractors, accumulated pension allowances. If you only think about tax when your accountant asks for your records, you are almost certainly leaving money on the table or storing up a problem you will not spot until it is too late.
This checklist covers everything a UK limited company director should review at least once a year. Most of it is evergreen: the items do not change. At the bottom, we include a clearly marked section with current year thresholds for 2026/27 so you can check the numbers without searching.
TL;DR
- Review your salary/dividend split every year. For most directors, £12,570 salary is optimal, but check if your circumstances have changed.
- Check your pension contributions. £60,000 annual allowance with up to 3 years carry forward. Employer contributions save both Corporation Tax and NI.
- Check your director's loan account before year end. Overdrawn by more than £10,000 means 33.75% Section 455 tax.
- Audit your expenses, review your VAT scheme, check contractor IR35 status, and update your insurance. Do this once a year, every year.
💡Quick reference summary. Continue reading for comprehensive analysis and context.
1. Salary and Dividend Split Review
Your salary and dividend split is the single biggest lever in your tax planning. Get it wrong and you pay thousands more than necessary in income tax and National Insurance. The optimal split depends on your personal circumstances, and those circumstances can change from year to year.
What to Check
- Is your salary set at the optimal level? For most sole directors, this is £12,570 (the personal allowance). Below that, you waste your tax-free income. Above that, you are paying unnecessary employer and employee NI.
- Do you have other employment income? If another job already uses up your personal allowance, a director's salary of £12,570 means you are paying basic rate income tax on every pound of that salary, plus NI. In that situation, a much lower salary (or even no salary) may be better.
- Does your company qualify for the Employment Allowance? If so, a higher salary may be more efficient because the NI cost is offset. The Employment Allowance is available to most companies with more than one employee.
- Has your spouse or partner joined the business? If your spouse is a shareholder and performs genuine work, paying them a salary and dividends can make use of two sets of tax-free allowances.
Common Mistake
Many directors set their salary once and never change it. If you started at a salary below the NI threshold and have not reviewed it since, you may be missing out on valuable National Insurance contribution credits that protect your state pension entitlement. At minimum, your salary should be at or above the Lower Earnings Limit (£6,500 for 2026/27) to qualify for a qualifying NI year.
For a detailed breakdown of how to calculate the right split for your situation, read our guide to how to pay yourself from a limited company.
2. Pension Contributions
Pension contributions made by your company as employer contributions are one of the most tax-efficient ways to extract profit. They reduce your Corporation Tax bill, attract no employer NI, and are not taxed as income for you personally at the point of contribution.
Why Employer Contributions Win
- Fully deductible against Corporation Tax
- No employer NI (saving 15% compared to salary)
- No employee NI or income tax on contribution
- 25% tax-free lump sum on retirement
What to Check
- How much of your £60,000 annual allowance have you used?
- Do you have unused allowance from the past 3 years to carry forward?
- Is your pension provider set up for employer contributions?
- Does the contribution need to be paid before your year end?
Example: Carry Forward in Action
You contributed £20,000 in each of the last three years. Your annual allowance is £60,000 per year. That means you have £40,000 x 3 = £120,000 of unused allowance you can carry forward, plus this year's £60,000. In total, you could contribute up to £180,000 this year. At a 25% Corporation Tax rate, that is a £45,000 tax saving on top of the NI savings.
For the full breakdown, including carry forward rules and the tapered annual allowance for high earners, read our pension contributions guide for directors.
3. Director's Loan Account
Your director's loan account (DLA) tracks the balance between what your company owes you and what you owe your company. If you have drawn more from the company than you are owed in salary, dividends, and expenses, your DLA is overdrawn. This creates a tax problem.
The Section 455 Tax Trap
What to Check
- What is your DLA balance? Ask your accountant or check your accounting software. If it is overdrawn, you need to act before year end.
- Can you repay the balance? If you have personal savings, repaying before the year end avoids the Section 455 charge entirely.
- Can you declare a dividend to clear it? If there are sufficient retained profits, declaring a dividend reduces the DLA balance. You will pay dividend tax, but at a much lower rate than the 33.75% Section 455 charge.
Do Not "Bed and Breakfast" Your Loan
Some directors repay their overdrawn DLA just before the year end, then borrow the money back shortly after. HMRC has a specific anti-avoidance rule for this. If you repay a loan of £5,000 or more and then reborrow £5,000 or more within 30 days, the repayment is ignored for Section 455 purposes. This is not a loophole. It does not work.
For the full picture, read our director's loan account guide.
4. Expenses Audit
Most directors are either not claiming everything they are entitled to, or they have stopped thinking about expenses because they set up their categories years ago. An annual review catches both problems.
Commonly Missed Expenses
- Home office costs (actual method vs £6/week flat rate)
- Professional subscriptions (HMRC approved list)
- Training and CPD (courses, conferences)
- Business mileage (45p/mile for first 10,000)
- Trivial benefits (£50 per benefit, £300/year cap)
- Business insurance premiums (PI, PL, cyber)
- Eye tests and DSE assessments (tax-free)
- Software subscriptions (SaaS tools)
Flat Rate vs Actual Costs: Home Office
The £6/week flat rate (£312/year) is simple but rarely the best option. If you work from home regularly, calculating actual proportionate costs (rent/mortgage interest, utilities, council tax, broadband) typically yields £1,000 to £2,000+ per year. That is three to six times more than the flat rate. Keep records and claim the higher amount.
For a complete list of what you can and cannot claim, read our limited company expenses guide.
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5. Corporation Tax Planning
Corporation Tax is not a single rate any more. Since April 2023, the rate depends on your level of taxable profits. And between £50,000 and £250,000, you fall into a marginal rate band that is higher than either the small profits rate or the main rate.
| Profit Level | Rate | What It Means |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,001 to £250,000 | Effective 26.5% | Marginal relief band. Each extra £1 of profit costs 26.5p |
| Over £250,000 | 25% | Main rate |
The Marginal Rate Trap
The 26.5% effective marginal rate between £50,000 and £250,000 is higher than the main rate of 25%. If your profits are just above £50,000, it may be worth bringing forward expenses (like pension contributions or equipment purchases) to bring profits below the threshold and save at the higher marginal rate. A £10,000 pension contribution at the 26.5% marginal rate saves £2,650 in Corporation Tax, compared to £2,500 at the 25% main rate.
Corporation Tax Checklist
- Annual Investment Allowance: Have you purchased any equipment this year? The full cost (up to £1 million) can be deducted from profits via the AIA.
- Timing of major purchases: If you are planning to buy equipment, consider whether it is better to purchase before or after your year end to maximise the tax benefit.
- R&D tax credits: If your company develops software, solves technical challenges, or innovates in its field, you may qualify for R&D relief. This can reduce your Corporation Tax bill or provide a cash credit.
- Associated companies: If you have more than one company, the £50,000 and £250,000 thresholds are divided between them. Two associated companies means the small profits threshold drops to £25,000 each.
6. VAT Scheme Review
If your company is VAT registered, you should be on the scheme that saves you the most money. The two main options are the Flat Rate Scheme and the Standard Rate scheme. The right choice depends on your costs.
Flat Rate Scheme
- Simpler admin: pay a fixed % of gross turnover
- Often saves money for service businesses with low costs
- Cannot recover input VAT on purchases (except capital assets over £2,000)
- Must leave if turnover exceeds £230,000
Standard Rate
- Recover VAT on all business purchases
- Better if you have significant costs (contractors, equipment)
- More admin: track input and output VAT on every transaction
- No turnover limit
When to Switch
If your business costs have increased significantly (e.g., you are now paying contractors or buying more equipment), switching from Flat Rate to Standard Rate may let you recover more input VAT than you save under the Flat Rate. Run the numbers each year. Your accountant should be doing this for you, but if they are not, ask.
7. Employment Status of Contractors (IR35)
If you use contractors or freelancers regularly, their employment status for tax purposes is your responsibility to check. Getting it wrong means your company could be liable for their PAYE, NI, and interest on late payments.
Annual IR35 Checklist
- Review each contractor's working arrangements. Has anything changed? Do they still have the right to send a substitute? Do they use their own equipment? Are they genuinely in business on their own account?
- Check if your company size has changed. If your company now has more than 50 employees, or turnover above £10.2 million, or a balance sheet above £5.1 million, you are a medium or large employer and must make Status Determination Statements for each contractor.
- Document your assessment. HMRC expects you to demonstrate reasonable care in making IR35 determinations. Keep a record of the factors you considered and the conclusion you reached.
- Stay current on case law. Tribunal and court decisions regularly clarify how the rules apply. HMRC's compliance activity in this area is increasing year on year.
The Cost of Getting It Wrong
If HMRC reclassifies a contractor as inside IR35, your company becomes liable for the income tax and NI that should have been deducted, plus interest. This applies retroactively. For a contractor paid £500 per day over two years, the liability can easily reach five figures. Prevention (annual review) is far cheaper than the cure.
8. Insurance and Benefits
Your company can provide insurance and benefits in a way that is both tax-efficient and genuinely useful. Many directors overlook these because they do not realise the tax advantages.
| Benefit | Corp Tax Deductible? | Benefit-in-Kind? | Notes |
|---|---|---|---|
| Key person insurance | Yes | No | Protects the company if a key individual cannot work |
| Relevant life policy | Yes | No | Life insurance paid by company. No BIK, no inheritance tax |
| Salary sacrifice pension | Yes | No | Saves both employer and employee NI |
| Electric vehicle (salary sacrifice) | Yes | 3% BIK | Very low BIK rate for EVs makes this attractive |
| Cycle to work scheme | Yes | Exempt | Up to £1,000 for standard, higher for electric bikes |
| Private medical insurance | Yes | Yes | Deductible for the company, but taxable as BIK on the director |
Relevant Life Policies: The Often Overlooked Win
A relevant life policy is life insurance taken out by your company on your life, paying out to your family if you die. The premiums are Corporation Tax deductible, there is no benefit-in-kind charge for you, and the payout does not count towards your estate for inheritance tax purposes. If you are currently paying for personal life insurance, switching to a relevant life policy through your company could save you both income tax and Corporation Tax.
9. Succession and Exit Planning
Even if you have no plans to sell your company, knowing its value is important. An annual valuation check helps with estate planning, confirms you are building equity, and means you are not starting from scratch if an opportunity arises.
What to Review Annually
- Business Asset Disposal Relief (BADR): If you sell your company, BADR reduces Capital Gains Tax to 14% on the first £1 million of qualifying gains (rising from 10% in April 2025, and increasing to 18% from April 2026). Make sure you meet the qualifying conditions: you must hold at least 5% of shares, be an officer or employee, and the company must be a trading company.
- Retained profits vs investment: Are you accumulating too much cash in the company? Excess cash can reduce BADR eligibility if HMRC considers the company has ceased trading or is primarily an investment company.
- Key person dependency: If the entire business depends on you, its sale value is lower. Documenting processes, building a team, and reducing personal dependency increases enterprise value year on year.
- Shareholder agreements: If you have co-directors or shareholders, review your shareholder agreement. Are the exit terms still fair? Are pre-emption rights still appropriate?
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10. Current Year Specifics: 2026/27 Tax Year
The checklist above is evergreen. The numbers below change each tax year. We update this section every April so you can check the current thresholds without searching.
2026/27 Tax Year Thresholds
Personal Tax
National Insurance
Corporation Tax
Pension and Benefits
Last updated April 2026. We review these thresholds at the start of each tax year.
Frequently Asked Questions
What should I review before tax year end as a director?
Before tax year end, review your salary and dividend split, pension contributions (including any carry forward from unused allowances), director's loan account balance, expense claims, Corporation Tax position, VAT scheme suitability, IR35 status of any contractors, and insurance and benefits. Most directors find at least one area where they can reduce their tax bill or avoid a penalty by doing this review annually.
Am I paying myself the right salary from my limited company?
For most sole directors, the optimal salary for 2026/27 is £12,570, which uses your full personal allowance while keeping NI costs low. If you have other employment income that already uses your personal allowance, a lower salary (or none at all) may be more efficient. If your company qualifies for the Employment Allowance, a higher salary up to the NI threshold can make sense. Review this every year as your circumstances change.
Should I make pension contributions before year end?
If you have unused pension annual allowance, contributing before your company's year end reduces your Corporation Tax bill. The annual allowance is £60,000. You can also carry forward up to three years of unused allowance. Employer pension contributions avoid both Corporation Tax and employer NI, making them one of the most tax-efficient ways to extract profit from your company.
How to reduce Corporation Tax before year end?
Key strategies include making employer pension contributions, purchasing equipment under the £1 million Annual Investment Allowance, paying legitimate bonus payments before year end, ensuring all allowable expenses are claimed, and timing major purchases to fall within the current accounting period. Be careful with the marginal rate trap: profits between £50,000 and £250,000 are taxed at an effective 26.5% rate.
What happens if my director's loan account is overdrawn?
If your director's loan account is overdrawn by more than £10,000 at your company's year end, the company must pay Section 455 tax at 33.75% of the outstanding balance. This is due 9 months and 1 day after the year end. The tax is refundable when the loan is repaid, but it creates a cash flow burden. Additionally, a benefit-in-kind charge applies on any loan over £10,000.
How often should I review my VAT scheme?
Review your VAT scheme at least annually. The Flat Rate Scheme suits service businesses with low material costs, but if your costs increase (e.g., you hire more contractors or buy equipment), switching to the Standard Rate may allow you to recover more input VAT. Also check if you have exceeded the turnover threshold for the Flat Rate Scheme (£150,000 to join, must leave if you exceed £230,000).
Do I need to check IR35 every year?
Yes. If you engage contractors regularly, their IR35 status should be reviewed at least annually. Working arrangements change, HMRC guidance evolves, and tribunal decisions affect how the rules are applied. If your company has more than 50 employees or turnover above £10.2 million, you are responsible for determining IR35 status for your contractors. Even if you are a small company, staying informed protects you from unexpected PAYE liabilities.
What insurance should my limited company have?
At minimum, consider professional indemnity insurance (often required by clients), employers' liability insurance (legally required if you have employees), and public liability insurance if clients visit your premises. Tax-efficient options include relevant life policies (Corporation Tax deductible, no benefit-in-kind for the director) and key person insurance. Both reduce your tax bill while protecting your business and family.
Related Guides
Use our Director Salary Calculator to find the most tax-efficient way to pay yourself this year.
For a deep dive into each checklist item, read these companion guides:
Related Tax Planning Guides
- How to Pay Yourself from a Limited Company . All five methods compared
- Pension Contributions for Directors . The most tax-efficient extraction method
- Director's Loan Account Guide . Avoid the 33.75% Section 455 tax trap
- Limited Company Expenses Guide . What you can and cannot claim
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