The start of the new tax year on 6 April 2026 brings a number of important changes that will affect small business owners, sole traders and company directors across the UK. These updates cover everything from digital tax reporting and capital allowances to employment costs and dividend taxation.
In this article, we highlight the key changes coming into force and what they could mean for your business.
Making Tax Digital for Income Tax begins
One of the biggest changes in recent years is the rollout of Making Tax Digital (MTD) for Income Tax Self Assessment.
From 6 April 2026, sole traders and landlords with combined business and property income over £50,000 must start keeping digital records and submitting tax updates to HMRC using compatible software.
You will be automatically enrolled into MTD based on your income for the 2024/2025 tax year, and will have received a letter from HMRC to confirm this.
Instead of submitting one annual Self Assessment return, affected taxpayers will need to:
- Keep digital records of income and expenses
- Send quarterly updates to HMRC
- Submit an end-of-period statement and final declaration each year
For many small businesses, this will mean adopting cloud accounting software and maintaining more regular bookkeeping. While it may initially feel like additional work, digital record-keeping can provide better visibility over business finances throughout the year.
Find out how to get ready for Making Tax Digital here.
Changes to capital allowances
There are also changes to the way businesses claim tax relief on certain capital expenditure.
From April 2026, the main rate writing-down allowance (WDA) for plant and machinery will reduce from 18% to 14%.
However, this is accompanied by the introduction of a 40% first-year allowance for qualifying main-rate assets, allowing some businesses to claim a larger portion of the cost upfront.
For businesses investing in equipment, vehicles or machinery, careful tax planning will be important to ensure capital expenditure is timed and structured efficiently.
Dividend tax increase
From 6 April 2026, dividend tax rates are set to increase by 2 percentage points.
This change particularly affects:
- Limited company directors
- Contractors and consultants
- Business owners who take income through dividends rather than salary
For many small business owners who operate through a limited company, this may increase the overall tax cost of extracting profits. Reviewing the balance between salary and dividends may therefore be worthwhile.
National Insurance and payroll considerations
For the 2026/27 tax year, National Insurance rates themselves remain largely unchanged, but some thresholds and payroll details have been updated.
Key points include:
- Employer National Insurance remains at 15% on earnings above the secondary threshold.
- The Lower Earnings Limit increases slightly to £129 per week.
- Employers continue to pay Class 1A National Insurance at 15% on benefits in kind.
In addition, the secondary threshold for employer NICs has been reduced to £5,000, meaning employer contributions begin at a lower salary level than previously. For businesses with employees, this could increase payroll costs slightly depending on salary levels.
National Minimum Wage increases
As usual, National Minimum Wage rates increase from April 2026, meaning employers will need to review their payroll to ensure compliance.
For businesses with lower-paid or hourly staff, this may increase wage bills and should be factored into budgeting for the new financial year.
View the latest National Minimum Wage rates here.
Changes to inheritance tax relief for business assets
Another measure taking effect from 6 April 2026 is the introduction of a £2.5 million cap on the combined 100% relief available through Agricultural Property Relief and Business Property Relief for inheritance tax purposes.
Assets above this threshold will only qualify for 50% relief, which effectively creates a 20% inheritance tax rate on qualifying value above the cap.
While this change will mainly affect larger businesses and family-owned enterprises, it highlights the importance of reviewing long-term succession and estate planning.
What small business owners should do now
Although some of these changes are administrative rather than financial, they could still have a significant impact on how your business operates.
Practical steps to consider include:
- Review whether Making Tax Digital will apply to you in 2026
- Ensure bookkeeping systems are digital and up to date
- Assess how dividend tax changes affect profit extraction
- Plan capital expenditure carefully
- Check payroll systems for wage and National Insurance updates
- Working with an accountant can help ensure you remain compliant while identifying opportunities to manage tax efficiently
How Greenwood Tax and Accounting can help
Navigating tax changes can feel overwhelming, especially when you are focused on running your business. At Greenwood Tax and Accounting, we support small business owners with; Making Tax Digital preparation, ongoing bookkeeping and cloud accounting, tax planning for limited companies and sole traders, plus much more.
If you would like help preparing for the April 2026 changes, our team would be happy to talk through your options. Get in touch with us today.
Disclaimer: This article provides general information only and should not be considered personalised tax advice. Please contact a professional adviser for guidance specific to your circumstances.
