As the adage goes, “There are two certainties in life, Death and Taxes”.

And both are not normally things business owners enjoy thinking about!

For many small business owners, tax is something they deal with once a year. You submit what’s due, maybe roll your eyes at the size of the bill, and then move on to making more profit next year.

But here’s the thing: tax efficiency isn’t just about compliance. Or something to reluctantly think about once per year.

It’s about putting more of your hard-earned money back into your business and your personal life.

At RedBrick, we think of tax efficiency as building a better home for your finances.

This guide is just a high level blueprint of the underlying principles. A simple, practical guide designed for UK small and medium-sized businesses that care about doing things the right way.

Whether you’re running a growing agency, managing a creative team, or providing consultancy services, this guide is designed to help you.

By making small changes, applying them consistently, you can make a big difference to your bottom line without compromising your principles.

What Tax Efficiency Actually Means

Firstly, tax efficiency isn’t avoidance. It isn’t about exploiting loopholes or evading taxes.

It’s about smart planning, legally using available reliefs, allowances and timing strategies to reduce what you owe without overstepping the mark or pushing HMRC’s boundaries, landing yourself in hot water.

It’s the financial equivalent of insulating your home: sensible, responsible, and ultimately, cost-saving.

And yet, like many home owners, several business owners don’t do it, do it poorly, and don’t realise they’re leaving money on the table each year.

Why? Because they didn’t know what was available to them. Or they had an accountant who just filed returns without asking any deeper questions.

10 Practical Ways to Improve Your Tax Efficiency

Here are the most common, accessible opportunities to improve your tax efficiency. Each is HMRC-compliant and widely applicable for UK small businesses.

1. Pay Yourself Smartly

• Use a salary + dividends structure (if you’re a limited company director) to reduce your National Insurance liability.
• Keep your salary below the secondary NIC threshold but above the Lower Earnings Limit for state pension credit.
• Review articles each year so you’re fully aware of the options and combinations available, and which is best for your individual circumstances.

2. Claim Allowable Expenses (Properly)

• Office costs, software subscriptions, business travel, phone bills, it all adds up.
• Keep receipts. Use cloud accounting software. Categorise consistently.
• Whilst there is some judgement involved, generally HMRC is quite conservative and strict when applying their criteria. To be qualifying for a tax deduction, expenses need to be “wholly, necessarily, and exclusively” for the purposes of the trade. This does not give a tremendous amount of leeway.
• And if you’ve claimed deductions you should not have and paid less tax as a result, HMRC may also charge penalties and interest, rather than just asking for the records to be corrected

3. Capital Allowances

• Buying equipment, machinery, or even office furniture? You may be able to deduct the cost from profits using the Annual Investment Allowance (AIA) or Full Expensing rules (introduced from April 2023).

4. Use the £1,000 Trading Allowance and Property Allowance

• Useful for side income or hybrid income streams.

5. Maximise Pension Contributions

• Contributions reduce your Corporation Tax bill and support your long-term future.
• Company pension contributions can be more efficient than extracting cash and investing personally.

6. Leverage R&D Tax Relief (if eligible)

• If you’re improving processes, products, or developing technology even in unexpected industries, you might qualify.
• Many businesses assume they don’t qualify, but it’s often worth asking the question and checking.
• Whilst HMRC have made the scheme less favourable in recent years, to reduce misuse, it is still beneficial.
• There are also other creative reliefs available if you’re in specific industries, such as video game production or theatre.

7. Use the Employment Allowance

• If you’re an employer you can claim up to £5,000 per year to reduce your employer NICs, assuming you meet the criteria.

8. Consider the VAT Flat Rate Scheme (for small businesses)

• If you’re a service-based businesses with low expenses, then this scheme could be beneficial for you.
• By modelling both standard and flat rate VAT schemes, you can compare which are most beneficial to you.

9. Time Your Expenditure Thoughtfully

• Timing matters. Buying just before or just after year-end can shift your tax bill. Sure, you still have to pay it eventually, but this buys you time. And after all, time is money.
• Planning and budgeting can help you quantify the timing benefits. You can also keep abreast of expected government/legislative changes, and time your expenditure when the regime is most favourable to you.

10. Hire an Accountant Who Does More Than Submit Returns

• Someone (such as us!) who can see the bigger picture. How do you know? They will ask you lots of questions, and get to know more about your wider business operations, not just your numbers.

Common Mistakes That Cost You

The cost of missed opportunities often outweighs the cost of doing something wrong. Some of the common mistakes we see:

1. Mixing personal and business expenses – This can really get messy, particularly over time, leading to missed deductions, as well as potentially fines and penalties.
2. Ignoring tax planning until year-end – As mentioned right at the beginning, tax planning is a year-round job.
3. Not using software properly – whilst clients and small business owners are usually early adopters and very keen to try new tech, they are also often pushed for time and resource. This means that they rarely set up software in the best way, and utilise all the features and functionality.
4. Not reviewing the director’s loan accounts – unmanaged balances can lead to surprise tax charges. It also builds up over time, and can be a nightmare to unpick and make sense of.
5. Assuming you’re too small for advice – the smaller the business, the bigger the impact of small efficiencies. Also the more things you’re unlikely to know, because you cannot dedicate resources to it.

The sad part, or course, is that they are all fully avoidable.

Real World Example – How Tax Efficiency Makes a Difference

Creative Agency, London (Turnover: £750k)

A common problem we see in clients, is they’re making a decent profit but still struggling with cashflow.

Often they’ve used a basic accounting service that filed their books but never asked about their pension plans, their dividend structure, or whether their software development costs could qualify for R&D relief.

We do this as part of a Financial Deep Dive which we do for all clients, right at the beginning of the relationship.

For the company above, that could mean:

• £27,000 R&D claim (when previously they hadn’t considered the relief or didn’t think it applied to them)
• £4,800 saved through pension contributions
• £3,100 in backdated allowable expenses

Generating a total tax efficiency gain in one year, of over £35,000.

More cash = Yes.

More control = Yes

Compliant with all the rules = 100%.

A great example of what tax efficiency looks and feels like: calm, clean, and cash-flow positive. With no dodgy schemes or grey areas that could turn illegal at a moments notice.

Tax Efficiency and Your Long-Term Goals

Despite what you may hear, most small business owners don’t go into business to “beat the taxman.” They go in to build something meaningful. Something that lasts. Something that adds real value to the world, whilst also improving their own lives.

Tax efficiency helps you:

• Reinvest in growth
• Pay yourself fairly
• Plan for retirement
• Protect what you’ve built

It’s installing insulation into the financial “home” you’ve built, to make sure it’s energy efficient and operating optimally.

A Few Final Tips for Staying Tax-Efficient

• Use cloud accounting software like Xero. It makes everything easier. Records are available to view on demand.
• Review your structure annually – sole trader? Limited company? Partnership? Do you still have the right legal setup for your personal and professional goals?
• Schedule regular check-ins with your accountant, not just at year-end. Escalate anything you are unsure of, to make sure you’re always in the know.
• Keep personal finances separate – it’s cleaner and more defendable.
• Track mileage, use allowances, keep evidence – little things compound.

Tax Efficiency is About Feeling in Control as much as Paying the Right Amount of Tax

It isn’t about loopholes, it’s about conducting business in a smart way.

You work hard for your income. Keeping more of it the right way is simply good stewardship. And the good news is: You don’t have to do it alone.

Let’s Build a Better Home for Your Finances

If you’ve made it down to here, you’re exactly the kind of business owner we love working with: Principled, curious, and looking to build something lasting and sustainable.

You deserve an accountant who cares as much about your business as you do.

For a better home for your business finances, email: hello@redbrickaccounting.com

We can help make tax work for you, not the other way around.