Year-End Tax Planning Tips for Sole Traders

As the tax year end approaches on 5 April, sole traders have a window of opportunity to take legitimate steps to reduce their tax bill. Tax planning isn't about avoiding your obligations — it's about making sure you claim every relief and allowance you're entitled to, and timing your income and expenditure to your best advantage.

I'm Penny, your AI bookkeeper at Accounted, and here are the most effective year-end tax planning strategies for sole traders, along with practical steps you can take before 5 April.

Review Your Profit Position

Before you can plan effectively, you need to know where you stand. The first step is to bring your books up to date and calculate your estimated profit for the year. This tells you which tax band you're in and how close you are to key thresholds.

The key thresholds to be aware of for 2025/26 are the personal allowance of £12,570, the basic rate band upper limit of £50,270, the higher rate threshold, and the £100,000 income level where your personal allowance starts to taper (you lose £1 of allowance for every £2 of income over £100,000, creating an effective sixty per cent tax rate between £100,000 and £125,140).

If your profits are close to any of these thresholds, small adjustments can have a disproportionate impact on your tax bill. For example, bringing your income down from £51,000 to £50,270 saves you the higher-rate tax on that £730, and a pension contribution is one way to achieve this.

Knowing your numbers is the foundation of all tax planning. If you're not sure where you stand, now is the time to get your records up to date. Our guide on cash flow management for sole traders covers how to stay on top of your finances throughout the year.

Pension Contributions

Pension contributions are one of the most powerful tax planning tools available to sole traders. Contributions to a personal pension receive tax relief at your marginal rate, effectively reducing your taxable income.

For 2025/26, you can contribute up to £60,000 to a pension (or one hundred per cent of your earnings, whichever is lower) and receive tax relief. If you haven't used your full annual allowance in the previous three tax years, you can carry forward the unused allowance, potentially allowing much larger contributions.

The tax savings can be substantial. A £10,000 pension contribution for a basic-rate taxpayer saves £2,000 in income tax. For a higher-rate taxpayer, the saving is £4,000. If you're caught in the £100,000 to £125,140 trap where the personal allowance tapers away, the effective relief can be even higher.

The contribution must be paid before 5 April to count for the current tax year. If you're making a large contribution, allow processing time — don't leave it until 4 April. You should also be aware that once you start taking taxable income from a pension (via flexi-access drawdown), your annual allowance drops to £10,000. For more on this, see our article on pension drawdown options for business owners.

Capital Expenditure and the Annual Investment Allowance

If you're planning to buy equipment, tools, vehicles, or other capital items for your business, doing so before 5 April means you can claim the deduction in the current tax year. The Annual Investment Allowance (AIA) allows you to deduct up to £1,000,000 of qualifying capital expenditure from your profits in the year of purchase.

Qualifying items include computers and IT equipment, office furniture, tools and machinery, commercial vehicles (cars have separate, less generous rules), and certain fixtures and fittings. The expenditure must be incurred — meaning the obligation to pay must arise — before 5 April.

If you were planning to make a purchase in April or May anyway, bringing it forward by a few weeks could save you a year's worth of tax relief. A £5,000 laptop bought on 4 April gives you a £5,000 deduction this year. The same laptop bought on 6 April means the deduction falls into next year.

However, don't buy things you don't need just for the tax relief. The maximum tax saving on a £5,000 purchase is £2,250 (at forty-five per cent), meaning you're still £2,750 out of pocket. Only accelerate purchases you were going to make anyway.

Timing of Income and Expenses

On cash basis accounting (which most sole traders use), income is recognised when received and expenses when paid. This gives you some control over the timing of both.

If you're close to a tax threshold, consider whether you can delay invoicing until after 5 April, so the income falls into the next tax year. This doesn't avoid the tax — it defers it — but deferral has value because you keep the money for an extra year and may be in a lower tax band next year.

Similarly, if you have business expenses you've been putting off — stocking up on supplies, paying for insurance renewals, buying subscriptions — paying them before 5 April means they reduce this year's profits rather than next year's.

HMRC provides guidance on cash basis accounting on their cash basis for self-employed page, which explains the rules around income and expense recognition.

Claim All Allowable Expenses

Year end is a good time to review whether you're claiming all the expenses you're entitled to. Many sole traders under-claim because they forget about certain categories, lose receipts, or aren't sure what's allowable.

Common expenses that are frequently overlooked include use of home as office (either actual costs or the simplified expenses flat rate), business mileage (forty-five pence per mile for the first 10,000 miles), professional subscriptions and memberships, books, courses, and training related to your business, accountancy and bookkeeping fees, bank charges on your business account, business insurance premiums, and the cost of replacing small tools and equipment.

Go through your bank statements and receipts for the year and check whether every business expense has been recorded. Even small amounts add up — twenty missed expenses of £50 each is £1,000 of unclaimed deductions, which could save you £200 to £450 in tax depending on your rate.

For a comprehensive overview of what you can and cannot claim, check our guide on allowable expenses for the self-employed.

The Trading Allowance

If your total trading income (not profit, but gross income) is under £1,000, you can use the trading allowance instead of calculating your actual profit. The trading allowance gives you a £1,000 deduction, meaning you don't need to report the income or pay tax on it.

This is most relevant for people with small side businesses or occasional freelance work alongside their main employment. If your trading income is over £1,000, you can still use the trading allowance as a deduction instead of claiming actual expenses — but this only makes sense if your actual expenses are less than £1,000.

Payments on Account

If your Self Assessment bill for the current year is going to be significantly lower than the previous year, you may be able to reduce your payments on account for next year. Payments on account are advance payments towards next year's tax, each equal to fifty per cent of the previous year's bill.

If you know your income is dropping — perhaps because of a planned reduction in workload, a seasonal downturn, or an expected large expense — you can apply to reduce your payments on account through your Government Gateway account. This improves your cash flow by not paying more in advance than you expect to owe.

However, be cautious. If you reduce your payments on account and your actual bill turns out to be higher than expected, HMRC will charge interest on the shortfall.

HMRC explains how payments on account work on their payments on account guidance page.

Act Now, Not Later

The most important year-end tax planning advice is simply this: don't leave it until the last minute. Review your position in February or early March, make a plan, and execute it with time to spare. Rushing tax planning decisions in the final days of the tax year leads to mistakes and missed opportunities.

Accounted gives you a real-time view of your income and expenses throughout the year, so when year-end comes around, you already know exactly where you stand. No scrambling to add up receipts, no surprises about your profit figure. If you want to make next year's tax planning easier, start using Accounted today.

Penny, your AI bookkeeper, tracks your tax position in real time and flags opportunities to reduce your bill. Meet Penny →