Key Tax Changes Every Business Owner Needs to Know About From April 2026

The new tax year is just around the corner, and with it comes a raft of significant changes following the Autumn 2025 Budget. Whether you're a self-employed trader, a landlord, a business owner, or an investor, some of these updates could have a meaningful impact on your finances, and in some cases, the changes are substantial enough to warrant a rethink of your current financial arrangements.

The good news is that with a little forward planning, many of these changes can be managed effectively. The key is understanding what's coming and taking action before April arrives. Here's a full breakdown of the key tax changes every business owner needs to know:

Making Tax Digital for Income Tax is Finally Here

One of the biggest structural shifts in UK tax administration in a generation is arriving this April. Making Tax Digital (MTD) for Income Tax begins for self-employed individuals and landlords with combined gross income over £50,000. This means:

• Digital record-keeping is now mandatory

• Quarterly submissions to HMRC are required, in addition to a final year-end declaration

  
  

This is a fundamental change to the way affected taxpayers report their income. Gone are the days of simply pulling everything together once a year for your Self Assessment return. Under MTD, you'll need to maintain up-to-date digital records throughout the year and submit a summary of income and expenses to HMRC every quarter.

If you've been putting off getting to grips with accounting software such as QuickBooks, Xero, Sage or FreeAgent, the time for action is now. HMRC has approved a range of compatible software, and there will be a solution out there for you. It's also worth noting that MTD isn't going away! The income threshold is set to reduce to £30,000 from April 2027, and eventually down to £20,000, so even those not yet caught by the rules just yet should start thinking ahead.

Dividend Tax Rates Are Going Up

For company directors and investors who draw income through dividends, this is an unwelcome change. Dividend tax rates are rising by 2 percentage points across the board:

• Basic rate: rising to 10.75%

• Higher rate: rising to 35.75%

  
  

This increase comes on top of the significant dividend tax hikes seen in recent years, and on top of the continued freeze on the dividend allowance, now sitting at just £500 per year, down from £2,000 as recently as 2023. The cumulative effect of these changes means that extracting profits from a limited company through dividends is becoming notably less tax-efficient than it once was.

If you run a limited company and currently take a mixed salary and dividend approach, it's well worth sitting down before April to review your remuneration strategy. There may be opportunities to bring forward dividend payments into the current tax year, or to explore other tax-efficient ways of extracting value from your business before the rates increase.

Working from Home Relief — The Rules Have Changed

The popular £6 per week flat rate for home working expenses — which many employees and directors have been claiming through Self Assessment since the shift to remote working accelerated during the pandemic — can no longer be claimed via HMRC or on your Self Assessment return from April 2026. Instead, this relief must be directly reimbursed by employers in order to qualify.

This is a notable change that will catch many people off guard. Employees who have grown accustomed to claiming this relief annually through their tax return will no longer be able to do so, meaning if your employer doesn't reimburse you directly for working from home costs, you'll lose access to this benefit altogether.

Employees and directors affected by this should speak to their employer or HR department as soon as possible to see whether a formal reimbursement arrangement can be put in place. For employers, it's worth reviewing your expenses and benefits policies to ensure they reflect the new rules, and to make sure you're not inadvertently leaving your staff out of pocket.

Inheritance Tax: A New Relief Cap for Farmers and Business Owners

The proposed combined cap on Agricultural Property Relief (APR) and Business Property Relief (BPR) has been revised upwards following significant industry pushback:

• The first £2.5 million of qualifying assets will attract 100% relief

• Values above that threshold will receive 50% relief only

  
  

While the increase in the cap from the originally proposed £1 million is a welcome concession, this remains a very significant change, particularly for farming families and owners of asset-rich businesses. Previously, qualifying agricultural and business assets could pass on free of Inheritance Tax in their entirety, making it possible for farms and family businesses to be passed down through generations without a large tax bill forcing a sale. That certainty is now gone for estates above the £2.5 million threshold.

For those with substantial agricultural land or business assets, this makes estate planning and succession planning more important and more complex than ever before. Early conversations with both a tax/financial adviser and a solicitor are strongly recommended, as the options available to you may depend on decisions made well in advance of any transfer of wealth.

Business Asset Disposal Relief CGT Rate Rises to 18%

If you're planning to sell, retire from, or wind up a business, Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs' Relief — remains available, but the tax rate applying to qualifying gains is rising to 18% from April 2026.

This continues a trend of this relief being gradually eroded. The lifetime limit was reduced from £10 million to £1 million back in 2020, and now the rate itself is creeping upwards. At 18%, BADR is still significantly more favourable than the standard higher rate of CGT, but it's no longer the near-flat-rate relief it once was.

If you're considering a business sale or disposal in the near future, the timing of the transaction could make a meaningful difference to your tax bill. It's worth exploring whether completing, or at least formally committing to, a transaction before 6th April could be beneficial in your specific circumstances.

Capital Allowances Writing Down Allowance Reduced

The main pool writing down allowance (the rate at which businesses can claim tax relief on most plant and machinery) is dropping from 18% to 14%. This means that the tax relief on capital assets held in the main pool will now be spread over a longer period, reducing the benefit in earlier years.

For businesses that invest heavily in equipment, machinery, or other qualifying assets (especially cars!), this change will affect cashflow and tax planning.

It's worth noting, however, that the Annual Investment Allowance (AIA), which allows 100% first-year relief on up to £1 million of qualifying expenditure, remains in place and is unaffected by this change.

Businesses with significant capital investment plans should review how best to structure their claims to maximise the relief available.

Electric Car Benefit in Kind Creeping Up

The benefit in kind (BIK) percentage for electric company cars rises from 3% to 4% from April 2026. While this might sound like a small increase, it forms part of a gradual upward trajectory for EV BIK rates. They are currently set to rise incrementally each year through to at least 2030.

That said, electric vehicles remain overwhelmingly more tax-efficient than their petrol or diesel counterparts, where BIK rates can reach 37% depending on emissions. For business owners and employees considering whether to take a company car, EVs continue to represent excellent value from a tax perspective — but it's wise to factor in the rising rates when making longer-term decisions about vehicle contracts and leases.

National Minimum and Living Wage Increases (from 1 April 2026)

Employers need to ensure their payroll is updated in time for the new rates, which come into effect from 1st April 2026 — a week before the new tax year:

Age Group	New Hourly Rate
21 and over (National Living Wage)	£12.71
18–20	£10.85
16–17 & Apprentices	£8.00

For businesses with lower-paid staff, the impact of these increases can be substantial, not just in terms of the direct wage cost, but also because of the knock-on effect on Employer National Insurance contributions, which are themselves increasing following the Budget. It's important to model the full cost impact on your business and, if necessary, revisit your pricing or staffing structures accordingly. Non-compliance with minimum wage legislation carries serious penalties, so ensuring your payroll is updated before 1st April is essential.

Statutory Sick Pay Overhaul

A significant and genuinely positive change for employees: the three-day waiting period before Statutory Sick Pay (SSP) becomes payable is being abolished. From April 2026, SSP will be available from day one of illness, and the earnings threshold that previously excluded lower-paid workers from eligibility is also being removed, meaning SSP will be accessible to all qualifying employees regardless of what they earn. For employees, this is a meaningful improvement in financial security during periods of illness.

For employers, however, it represents an increase in cost, particularly for businesses with high levels of short-term sickness absence. It's worth reviewing your sickness absence policies and, if applicable, any company sick pay arrangements, to ensure they remain appropriate in light of the new rules.

Most other statutory pay rates, including Statutory Maternity Pay, Paternity Pay, and Shared Parental Pay, are also increasing with inflation, so a full review of your statutory obligations is a worthwhile exercise ahead of April.

The Stealth Tax Continues…

Amid all of the above changes, it's worth pausing to highlight what isn't changing — and why that matters.

Income tax and National Insurance thresholds remain frozen for another year. This ongoing freeze, which has now been in place for several years, means that as wages rise with inflation, more and more people are being dragged into the tax net for the first time, or pushed up into the higher rate band, without any headline rate changes being announced (sometimes referred to as "fiscal drag" by politicians and economists).

This so-called "stealth tax" is quietly, but significantly, increasing the amount of income tax collected from ordinary workers and business owners alike. If your earnings have grown in recent years, it's quite possible that a larger proportion of your income is now taxed at 40% than you might realise.

It's a good moment to review your overall tax position and consider whether there are legitimate steps you could take — such as maximising pension contributions or making use of available allowances — to reduce your exposure.

Not Sure How This Affects You?

These changes are wide-ranging, and their impact will vary enormously depending on your personal and business circumstances. Some people will be affected by just one or two of the above; others may find that several of these changes interact in ways that make a thorough review of their tax affairs genuinely worthwhile.

If you're uncertain about how any of the above applies to you — or you'd simply like a clear, jargon-free picture of where you stand heading into the new tax year — get in touch today for a free 30-minute consultation. There's no obligation, and it could make a real difference to your financial position in 2026 and beyond.

This article is for general information purposes only and does not constitute personal tax advice. Always seek professional advice tailored to your own circumstances.