6 Year End Tax Planning Tips For Sole Traders: Don't Leave It Too Late

Year end tax saving tips for Derby sole trader businesses. Helping you pay less tax.

As the end of the tax year approaches, many sole traders feel a familiar knot of anxiety wondering whether they've done everything they can to protect their hard earned income. The good news? With a little forward planning, you can legally reduce your tax bill, stay compliant and head into the new tax year with confidence.

Why Year End Planning Matters For Small Businesses

The UK tax year runs from 6 April to 5 April. Once that date passes, most of the opportunities to reduce your liability for that year are gone. You cannot go back and make a pension contribution for a year that has closed. You cannot restructure how you paid yourself six months ago. The window shuts and it does not reopen.

Good year end planning is not about doing anything complicated. It is about using the allowances and reliefs you are already entitled to before you lose the chance to pay less tax.

Key Tax Planning Areas To Review Before 5th April

Tip #1 - Use Your Personal Allowance in Full

The personal allowance for 2025/26 is £12,570. If your income for the year is below. this, you are leaving it on the table. If you have a spouse or civil partner who earns less, consider whether income can legitimately be shared through salary, dividends or jointly held assets.

Every pound of unused allowance is wasted. The basic rate band runs to £50,270. If your income is approaching this threshold, a pension contribution or timing adjustment could keep you within the 20% band and out of the 40% bracket entirely.

Tip #2 - Maximise Pension Contributions

Pension contributions made before 5th April receive full tax relief in the current tax year. For a higher rate taxpayer (40%), every £80 you contribute costs you just £60 after relief because the government puts in the other £20.

The annual allowance is £60,000 (or 100% of earnings if lower). Unused allowance from the previous three years can be carried forward, so a larger contribution may be possible if you have not been maximising pension saving in recent years.

Tip #3 - Review Your Expenses

One of the most straightforward ways to reduce your tax liability as a sole trader is to ensure you've claimed every allowable expense before the tax year closes on 5 April.

Allowable expenses reduce your taxable profit — so the more legitimate costs you've recorded, the less Income Tax and Class 4 National Insurance you'll pay. Common expenses sole traders overlook include:

• Business mileage at HMRC's approved rates (currently 45p per mile for the first 10,000 miles and 25p per mile thereafter)

• Professional subscriptions, training and development relevant to your trade

• Equipment, software and tools used solely for your business

• Marketing costs, including your website and advertising spend

Action point: Review your bank statements and receipts now. If you have any planned business purchases, bringing them forward to before 5 April means they fall in the current tax year, reducing this year's tax bill.

Tip #4 - Use Of Home Expenses - Don't leave money on the table

If you work from home as a sole trader, even part of the time you're entitled to claim a proportion of your household running costs as a business expense. Yet this is one of the most consistently underclaimed reliefs available to self-employed people. Year-end is the perfect moment to make sure you've captured every penny.

Method 1 - HMRC Simplified Flat Rate (Easiest option)

HMRC allows sole traders to claim a flat monthly rate based on the number of hours worked from home each month, without needing to calculate actual costs:

• 25–50 hours per month: £10 flat rate

• 51–100 hours per month: £18 flat rate

• 101 or more hours per month: £26 flat rate

This is straightforward and requires no receipts — just a log of your hours. However, it often results in a lower claim than the actual cost method below.

Method 2: Proportional Actual Costs

Alternatively, you can calculate the actual proportion of your home costs that relate to business use. The formula is based on the number of rooms used for business divided by the total number of rooms, and the proportion of time spent working. Costs you can include in this calculation:

• Mortgage interest or rent (note: not capital repayments on a mortgage)

• Gas and electricity bills

• Water rates (if relevant to your trade)

• Broadband and home phone (business proportion only)

• Council Tax (proportional business use)

• Home insurance (proportional business use)

  
  

Important: If you own your home, claiming a business proportion of mortgage interest is fine but be cautious about claiming a proportion of the full property costs, as this could affect your Capital Gains Tax private residence relief when you sell. Your accountant can advise on the right approach for your situation.

Tip #5 - Review Your Capital Allowances and Annual Investment Allowance

If you've invested in equipment, machinery, or technology for your business this year, you may be able to claim capital allowances, including the Annual Investment Allowance (AIA) to deduct the full cost against your profit in the year of purchase.

The AIA currently allows sole traders to deduct up to £1 million of qualifying plant and machinery expenditure in a single tax year. This is a powerful relief that many self-employed people don't fully utilise.

Qualifying items include:

• Business vehicles (cars are subject to different rules and check CO2 emissions thresholds)

• Computer equipment, tablets, and smartphones used for business

• Tools, machinery, and specialist equipment

• Office furniture used exclusively for business purposes

  
  

Action point: If you've been putting off a significant business purchase, the runup to 5th April is the time to act, claiming it this tax year rather than next could reduce your current year's tax bill substantially.

Tip #6 - Check Your National Insurance Contributions (NIC)

Sole traders should confirm their NIC position is accurate, especially if profits have varied during the year. Sole traders need annual profits of at least £6,845 in the 2025/26 tax year to automatically qualify for a National Insurance credit towards their state pension without paying class 2 NICs.

Those with profits below this, but above £6,500 (the Lower Earnings Limit), may need to pay voluntary Class 2 contributions to ensure the year counts. Click here to check your national insurance contributions.

If You're A Sole Trader and Need Help With Your Year-End Tax Planning...

At AccountingBliss, we are Derby based accountants working with small business owners whether sole traders, limited company directors across the city and surrounding area. Year end reviews are a standard part of how we look after clients and not an expensive extra. If you would like a year end planning review, or if you're not sure whether your current accountant is making the most of your tax reliefs get in touch for a free 30-minute consultation and we will confirm exactly what you need to do and when.

Derby: 01332 577 289