The Christmas Tax Trap: Why January Is So Expensive

🎄 The Christmas Break Tax Trap: Why January Is the Most Expensive Month of the Year for Business Owners

And how to avoid the cashflow crunch that catches thousands out every year.

December is supposed to be a time for switching off — mince pies, family time, and maybe the occasional “quiet drink” in the local pub 🍻.
But for UK business owners, something else is quietly waiting in the background…

January.
The most expensive month of the year.

Every single year, we see business owners get caught in what we call the Christmas Break Tax Trap — where relaxed December spending meets harsh January realities.

Here’s what’s coming, why it hits so hard, and how to plan now so you don’t start 2026 on the back foot.

❄️ 1. The Big One: Self Assessment Tax is Due on 31 January

While everyone else is recovering from Christmas, business owners are hit with:

Your 2024/25 tax bill
PLUS your first payment on account for 2025/26

Many people forget this second part — and it’s often 50% of last year’s tax bill.

That’s why the January bill feels so brutal.

How to avoid the trap:
✔ File your tax return early (don’t wait until January)
✔ Set aside money monthly for tax
✔ If your profits are down, you may be able to reduce payments on account

If in doubt, speak to us — we can help.

❄️ 2. VAT Returns — The January Surprise

If your VAT quarter ends in:

November
December

…your VAT return is also due in January.

After a quiet trading month, this can seriously strain cashflow.

Avoid the trap by:
✔ Getting your bookkeeping up to date in December
✔ Estimating your VAT bill ahead of time
✔ Using cash accounting if eligible to smooth the peaks

❄️ 3. Payroll, Holiday Pay & Staff Costs Collide

December payroll often includes:

Statutory holiday pay
Overtime
Christmas bonuses
Seasonal staff
Early pay runs

Then January payroll hits less than a month later.

Double payroll pressure can wipe out a business’s cash buffer.

Avoid the trap:
✔ Forecast payroll for both months in advance
✔ Don’t over-commit to bonuses without checking your cashflow
✔ Make sure holiday pay has been properly accrued throughout the year

❄️ 4. Customers Pay Slower Over Christmas — But Bills Don’t

December is notorious for:

Slow customer payments
Fewer trading days
Reduced output
Supplier closures

But your January obligations stay the same — or increase.

It’s a perfect storm.

Avoid the trap:
✔ Chase outstanding invoices before Christmas
✔ Offer easy online payment methods
✔ Consider requesting deposits for January work

Cashflow tightening now prevents panic later.

❄️ 5. Direct Debits & Subscriptions Renew in January

Many annual subscriptions (software, insurance, hosting, memberships) are taken in January.

For small businesses using multiple digital tools, this can easily add up to hundreds — even thousands.

Avoid the trap:
✔ Review your subscriptions in December
✔ Cancel unused tools before they renew
✔ Replace expensive services with cheaper alternatives

A subscription audit can free up surprising amounts of cash.

❄️ 6. Director’s Loan Accounts Hit Danger Zone

December spending often results in directors unintentionally using company funds for personal purchases.

This inflates a director’s loan account (DLA) — and can trigger:

S455 charges
Benefit-in-kind issues
Personal tax consequences

Avoid the trap:
✔ Keep personal and business spending separate
✔ Check your DLA balance before January
✔ Take dividends properly rather than “borrowing”
✔ Speak to us before year-end if the balance is growing

❄️ 7. Nobody Budgets Properly for January — But Everyone Should

January bills are predictable…
Yet most business owners don’t budget for them.

By doing even a simple December forecast, you can avoid the stress completely.

Plan for:

Tax bill
Payment on account
VAT return
Payroll (twice in 4–5 weeks)
Direct debits & renewals
Reduced income after Christmas

A solid plan now = peace of mind next month.

⭐ How to Avoid the Christmas Break Tax Trap (Your Checklist)

✔ File your tax return early
✔ Forecast January cashflow before the break
✔ Get bookkeeping up to date
✔ Review your director’s loan account
✔ Plan payroll & bonuses properly
✔ Chase overdue invoices before Christmas
✔ Reduce payments on account (if eligible)
✔ Review subscriptions due to renew
✔ Book a year-end planning session with us

A calm January starts with smart December planning.