Dodging tax and NI on 2025/26 benefits

Tax-efficient trick pending

The 2025/26 tax year may be over but that doesn’t mean that you’re out of time to reduce your and your company’s tax liability for the year. If you received benefits in kind you have the opportunity to increase tax efficiency, but the window for 2025/26 is only open until 6 July 2026.

If you’re an employee of a company and don’t own shares in it, making good a benefit provided to you won’t be tax efficient. However, if you’re a major shareholder it’s worth considering.

Say goodbye to tax and NI

Once you have received a taxable benefit the income tax and Class 1A liability is triggered. However, the benefit rules include a let-out. They allow you to cancel both the tax and NI liabilities. This involves paying your company a sum equal to the taxable amount of the benefit. This is known as “making good”.

With one exception (zero or cheap rate employer loans) making good a benefit must be done no later than 6 July following the end of the year for which the benefit is taxable. So, as already mentioned for 2025/26, the deadline is 6 July 2026. 

If the benefits are processed through payroll, the deadline for making good is the end of the tax year in which the benefit is received, i.e. 5 April 2027 for benefits received in 2026/27.

Making good with dividends

You can make good a benefit using your personal funds or alternatively your company could pay you an additional dividend which you pay straight back to the company. There’s no need to make two cash transfers, a book entry is sufficient.

Making good through a current year dividend has the advantage of reducing and deferring the income tax cost and eliminating the Class 1 NI liability.

Example. In August 2025 Tony, the sole director and shareholder of Acom Ltd, used his company credit card to pay £6,000 for his family’s summer holiday. This is a benefit for tax and NI purposes and Acom would usually need to report this to HMRC on Form P11D by 6 July 2026. As a higher rate taxpayer, Tony would be liable to tax on the benefit of £2,400 (£6,000 x 40%) payable by 31 January 2027. The company must also pay Class 1A NI of £900 payable by 21 July 2026. On 1 July, Tony is paid a dividend of £6,000, which he uses to repay Acom. Tony’s tax bill is reduced to £2,145 (£6,000 x 35.75%) and Acom’s NI bill to nil. The total saving is therefore £1,155 ((2,400-2,145)+900). What’s more, the tax on the dividend is payable a full year later (31 January 2028) than it would have been.

Making good with a loan

Dividends are only an option if the company has sufficient reserves. Alternatively, you can debit your director’s loan account to buy yourself some extra time. The loan needs to be repaid nine months after the end of the company’s accounting period, when you may be in a position to use a dividend to settle the debt.