Small Businesses & Side Hustles Tax Planning

Cash Basis, Trading Allowance, BADR & Practical Compliance 

For those running a small business or side hustle, tax efficiency is critical and now is the time to review your finances to see what measures are available to you to help mitigate your tax liability. In this article, we take a look at some of the options you might want to consider.  

Cash Basis is now the default (for trading and property income)

From 2024/25, the cash basis is the default for all businesses (including property income). The old turnover thresholds are gone. If you prefer the traditional method (stock, WIP, prepayments/accruals), you must opt out annually on your Self Assessment return. If you run multiple businesses, you can choose a method per business.

Tax planning tips  

• Choose deliberately. If you carry stock, big prepayments or want to match income/expenses precisely (e.g., for lending covenants), consider opting out to accruals.
• Cashflow smoothing. Under the cash basis, payment timing drives tax timing: manage when you invoice/chase and when you pay suppliers to smooth taxable profits. 
• Interest cap awareness. Cash basis has rules on interest deduction caps. Check if you have sizeable finance costs. 

“Side-hustle” Trading Allowance & simple reporting

The Trading Allowance remains £1,000. Income below £1,000 from self-employment/side gigs needn’t be reported. Above £1,000, current rules require Self Assessment. New rules are planned so that income up to £3,000 can be declared via a new online facility without entering Self Assessment if this is your only reason, but no start date has been set yet.

Tax planning tips  

• Keep clean records now. Don’t wait for the new portal. Track gross income and costs so you can choose between claiming the £1,000 allowance or actual expenses.
• Avoid confusion. If you already file Self Assessment for other reasons, you’ll still report side-hustle income on your return.  

Capital gains on exit: BADR tightening over time

Business Asset Disposal Relief (BADR) has a 14% CGT rate on qualifying gains up to £1m lifetime. The rate is scheduled to increase to 18% (6 April 2026). 

Qualifying share disposals usually require, for two years before sale: ≥5% ordinary share capital, ≥5% voting rights, being an officer/employee, main activities must be in trading, and economic tests (≥5% entitlement to distributable profits/assets and sale proceeds). Asset-based BADR has further conditions (use, personal use restrictions, rented assets, etc.). Protection from dilution exists where future funding would drop you below 5%.

Tax planning tips  

• Diarise the two-year tests. If you plan to sell in the next 24–36 months, shore up 5% tests and officer/employee status now.
• Family transfers. Spousal transfers don’t carry across the holding period for BADR, so ensure the transferee meets the two-year clock in their own right.
• Use dilution protection if a funding round will drop you below 5%, and elect to bank the gain up to the dilution event. 

Approved Mileage Allowance Payments (AMAPS) (handy for micro businesses)

• Cars (own vehicle): 45p/mile first 10,000 miles, 25p thereafter; +5p per passenger on business trips.
• Bicycles 20p/mile; motorcycles 24p/mile. 

Tax planning tips  

• Log trips. A simple mileage app ensures you don’t miss claims.
• Compare methods. If you’re incurring high running costs, consider whether actual expenses (with apportionment) beat AMAPs. 

Capital allowances - quick wins for micro businesses

The AIA £1m limit allows most small businesses to write off plant & machinery 100% in year one. If you’re unincorporated, AIA is usually your go-to (Full Expensing is for companies only). 

Tax planning tips  

• Batch spend. Time larger purchases pre-year-end to reduce your current-year bill when cashflow needs it most.
• Fixtures checklists when leasing/renovating commercial premises, don’t leave relief on the table. 

Pensions for the self-employed

You’ll get tax relief on personal contributions up to the higher of £3,600 or 100% of relevant earnings, within the £60k annual allowance (subject to taper). Carry forward of unused Annual Allowance may boost capacity.

Tax planning tips  

• Sweep-up strategy. If you’ve had patchy years, use carry forward to make a lump-sum in a good year (e.g., after a large contract).
• Spousal planning. If a spouse has earnings, parallel contributions can double family tax relief. 

Property & fixtures (if you run a business from premises)

Buying or refurbishing premises? You may access Structures & Buildings Allowance (SBA) (3% p.a.) and capital allowances on qualifying fixtures (lighting, heating, etc.).

Tax planning tips  

• Joint election on purchase. Agree fixtures values with the seller (s.198 election) or risk losing allowances.
• Energy-efficient kit. Where possible, choose qualifying equipment for 100% relief. 

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.