Following the recent Spring Statement, the 2026/27 tax year is now in effect, bringing a series of changes that are already reshaping how UK businesses operate. Changes across payroll, dividend taxation, capital allowances, reporting requirements and business reliefs are no longer future considerations. They are already influencing financial decisions today.
While each change may appear manageable in isolation, their combined impact can significantly affect cash flow, profitability, and compliance. Without a clear, joined up understanding, businesses risk overlooking opportunities, misjudging costs or making decisions based on outdated assumptions.
In this guide, we break down the key tax changes for the 2026/27 tax year and what they mean in practice, so you can stay compliant, make informed decisions and plan with confidence.
Making Tax Digital for Income Tax: Quarterly reporting now in effect
This is one of the most significant changes introduced in the 2026/27 tax year. From 6 April 2026, Making Tax Digital for Income Tax became mandatory for sole traders and landlords with a qualifying gross annual income above £50,000, bringing Income Tax Self-Assessment (MTD for ITSA) into a fully digital reporting regime.
Under this new regime, affected taxpayers must:
- Keep digital records of income and expenses using approved, compatible software (like Xero or QuickBooks)
- Submit quarterly updates to HMRC throughout the tax year
- File a final annual declaration to reconcile figures at year end
Businesses within scope should already have compatible systems and processes in place. If not, this should be treated as an immediate priority, as HMRC will impose penalties for non-compliance. For businesses supported by internal finance teams, this may also require updates to reporting workflows, systems, and internal controls.
Looking ahead, Making Tax Digital will continue to expand. From April 2027, those with qualifying income above £30,000 will be brought into scope, followed by a further reduction to £20,000 from April 2028.
If you are a startup owner looking to understand how these changes may apply, see our guide on How MTD Affects Startups in 2026.
Employer National Insurance Contributions: Pressure on employment costs continues
Following the 1.2% increase introduced in 2025/26, employer National Insurance Contributions remain at 15% for the 2026/27 tax year. The secondary threshold, at which employer contributions begin, also remains at £5,000, down from £9,100 previously, meaning employer National Insurance now applies to a larger portion of each employee’s earnings.
For businesses with growing teams or operations that rely heavily on headcount, the cumulative impact of these changes is significant. To stay compliant, regardless of whether payroll is managed internally or by an external provider, the following areas should be reviewed:
- Payroll software reflects the correct rates and thresholds for 2026/27
- Employment Allowance claims are active, as they do not always carry over automatically between tax years
- Eligibility for Employment Allowance is reassessed, following the removal of the £100,000 cap on employer National Insurance liability, which may bring some previously excluded businesses into scope
These changes directly affect employment costs and should be factored into payroll calculations, budgeting and cost projections to maintain accurate financial reporting.
National Living Wage increases: Rising wage costs continue
From 1 April 2026, the National Living Wage increased to £12.71 per hour for workers aged 21 and over, up from £12.21.
Rates for younger workers have also increased:
- Ages 18 to 20: £10.85 per hour
- Ages 16 to 17 and apprentices: £8.00 per hour
These increases, which are above inflation, will directly affect businesses with larger workforces or roles at or near minimum wage levels. For sectors such as hospitality, retail and care, the impact on overall payroll costs is likely to be more pronounced. To remain compliant:
- Employee pay rates must meet the updated legal minimums
- Salary adjustments should be reflected in payroll systems
- Budget forecasts should account for the full increase in wage costs across the workforce
When considered alongside the employer National Insurance changes already in effect, the combined impact on employment costs becomes more significant. For many businesses, this will place additional pressure on margins and require closer monitoring of staffing costs.
Dividend tax changes: Higher costs for profit extraction
For many limited company directors, the 2026/27 tax year introduces higher tax rates on dividend income, increasing the cost of extracting profits. The updated rates are:
- Basic rate: 10.75%, up from 8.75%
- Higher rate: 35.75%, up from 33.75%
- Additional rate: 41.35%, up from 39.35%
The dividend allowance remains frozen at £500, meaning any dividend income above this threshold continues to be taxable at higher rates.
For businesses where dividends form a significant part of director remuneration, this results in increased overall tax liability. As a result, taking income through dividends may now be less tax efficient than in previous years.
This makes it important to review how profits are currently being extracted and consider whether the existing remuneration structure remains appropriate for the year ahead.
See the most tax efficient way to pay yourself as a director in our latest guide here.
Capital Gains Tax: Business Asset Disposal Relief rate increases
The rate of Capital Gains Tax under Business Asset Disposal Relief has increased to 18% for disposals made on or after 6 April 2026, up from 14% in the previous tax year.
Prior to April 2025, the rate was 10%, meaning the tax on qualifying gains has increased substantially over a short period. The lifetime limit remains unchanged at £1 million.
For example, a qualifying gain of £1 million would have resulted in a tax liability of £100,000 at 10% rate, increasing to £140,000 at 14% in 2025/26.
Under the current 18% rate, this increases to £180,000, representing an 80% rise in the tax cost of exiting a business over two years.
For business owners planning a sale, the timing of a disposal now plays a more significant role in determining the overall tax outcome, directly impacting the value retained from a transaction and highlighting the need to review exit strategies in line with current tax rates.
Capital Allowances: Changes to investment tax relief
The 2026/27 tax year introduces both reduced relief and new opportunities for businesses investing in plant and machinery, with the overall impact varying depending on business structure and the nature of the investment.
The main rate of writing down allowance has been reduced from 18% to 14% from April 2026. This results in slower tax relief, increasing the short term cost of investment for many businesses.
At the same time, a new 40% first year allowance for main rate expenditure has been introduced from 1 January 2026. This applies to businesses that cannot claim full expensing, including unincorporated businesses and those operating in leasing or hire, providing accelerated relief for eligible investment.
The 100% first year allowance for zero emission cars and electric vehicle charge points has also been extended to April 2027, continuing to support investment in greener fleets and infrastructure.
These changes alter the timing of tax relief on capital expenditure, directly influencing cash flow and investment planning. Businesses will need to assess how and when relief is claimed to ensure capital expenditure is aligned with current allowances and overall tax efficiency.
R&D tax relief: Increased scrutiny and compliance expectations
R&D tax relief continues to face increased scrutiny, with HMRC placing greater emphasis on the accuracy, quality, and eligibility of claims. The rise in enquiries in recent years reflects a sustained effort to reduce errors and challenge non-compliant submissions.
For businesses, particularly those in technology and innovation sectors submitting R&D claims, this raises the importance of clearly identifying qualifying activities, maintaining robust supporting documentation, and ensuring alignment with HMRC criteria. Claims that lack sufficient detail or justification are more likely to be reviewed or challenged.
Other changes to consider
Alongside the major updates outlined above, several additional changes may affect businesses depending on their structure, sector, or activities.
Business rates relief
From April 2026, a permanent lower multiplier has been introduced for retail, hospitality and leisure properties with rateable values below £500,000. This replaces the temporary relief that had been renewed annually, providing greater certainty for eligible businesses.
Pubs and live music venues will also benefit from an additional 15% relief for the 2026/27 tax year, with rates then frozen in real terms for the following two years.
For businesses operating in these sectors, this provides more stability in property related costs, although it remains important to ensure that the correct reliefs have been applied to rates bills.
Corporation Tax Filing penalties
From April 2026, penalties for late Corporation Tax returns have increased significantly. A late filing now attracts a £200 penalty, rising to £400 if the return is more than three months late. Repeated late filings can result in penalties of up to £2,000.
These thresholds had not changed since 1998, marking a notable shift in HMRC’s approach to compliance. This increases the importance of maintaining accurate filing schedules across all entities, including dormant companies, which remain subject to filing requirements.
EMI Share Options
The eligibility criteria for Enterprise Management Incentive (EMI) share options have been expanded, allowing more businesses to qualify.
Companies can now be eligible with up to 500 employees and £120 million in gross assets, up from the previous limits of 250 employees and £30 million. In addition, the maximum period for holding options has been extended from 10 to 15 years.
For businesses looking to scale, this increases the flexibility of EMI schemes as a tool for rewarding and retaining key employees, while maintaining favourable tax treatment.
Fuel duty
The temporary reduction in fuel duty has been extended until August 2026, after which gradual increases are expected through to early 2027.
For businesses with significant transport or logistics costs, this creates a phased increase in operating expenses over the coming months, particularly in the second half of the year.
These changes should be factored into cost forecasts to ensure pricing, budgeting and margin expectations remain aligned with rising fuel costs.
Key actions to take for the 2026/27 tax year
The updates introduced in the 2026/27 tax year affect multiple areas of business operations, including payroll, remuneration, capital investment and compliance. Reviewing these areas in a structured way will help ensure that your current approach remains aligned with the latest tax rules.
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MTD for Income Tax | Ensure affected individuals are registered and using compatible software |
Employer NIC and National Living Wage | Update payroll systems and review Employment Allowance eligibility |
Dividend tax increase | Review remuneration structures for directors and shareholders |
BADR rate increase | Assess the timing of any planned business disposals |
Capital allowances changes | Review capital investment plans and timing of expenditure |
Corporation Tax penalties | Review filing deadlines across all entities |
EMI scheme expansion | Assess eligibility for employee share option schemes |
Fuel duty changes | Update cost forecasts where transport or logistics is significant |
Final thoughts
The changes introduced in the 2026/27 tax year affect multiple areas of your business, and without a joined up view, it becomes easy to overpay tax or miss available reliefs. Maintaining an accurate and well structured financial position is key to operating efficiently under the current tax rules.
How Rise Accounting can help
At Rise Accounting, we provide a fully integrated approach to accounting, tax and financial oversight, ensuring your numbers remain accurate, compliant, and up to date, while reducing day to day complexity for your team.
If you have not reviewed your position since these changes came into effect, now is the right time to do so. You can book a free consultation with us to review your current setup and ensure your accounting and tax position remains aligned with the latest changes.
