Tax Year 2026/27: Key Changes for SMEs

The 2025 Autumn Budget introduced significant changes that took effect from April 2026, reshaping the tax landscape for UK businesses. Here is what SME owners and directors need to know about the changes now in force.

1. Corporation Tax Rates

Corporation tax rates remain stable for the financial year beginning 1 April 2026:

• Main rate: 25% (for profits exceeding £250,000)
• Small profits rate: 19% (for profits up to £50,000)
• Marginal relief: Available for profits between £50,000 and £250,000

Where a company has associated companies, both profit thresholds are divided by the number of active companies worldwide.

Late Filing Penalties Double

2. Capital Allowances Changes

Writing Down Allowances

The main rate writing down allowance (WDA) decreased from 18% to 14% in April 2026. This affects businesses claiming allowances on plant and machinery that do not qualify for full expensing.

New 40% First-Year Allowance

To offset the reduced WDA rate, a new 40% first-year allowance (FYA) applies to main pool qualifying expenditure from January 2026. This includes:

• Expenditure that would otherwise qualify for full expensing
• Assets used for leasing (now eligible)
• Qualifying expenditure by unincorporated businesses

Extended Reliefs

The 100% first-year allowance for zero-emission vehicles and electric vehicle charge points has been extended until:

• 31 March 2027 (for Corporation Tax purposes)
• 5 April 2027 (for Income Tax purposes)

3. Dividend Tax Increases

From 6 April 2026, dividend tax rates increased for basic and higher rate taxpayers:

Tax Band	Current Rate	New Rate (from April 2026)
Basic rate	8.75%	10.75%
Higher rate	33.75%	35.75%
Additional rate	39.35%	39.35% (unchanged)

The £500 dividend allowance remains unchanged. However, combined with frozen income tax thresholds, even modest income increases could push taxpayers into higher bands.

4. Business Asset Disposal Relief

The rate for Business Asset Disposal Relief (formerly Entrepreneurs' Relief) increased from 14% to 18% on 6 April 2026. This affects business owners selling qualifying business assets or shares.

5. Making Tax Digital (MTD)

Income Tax Self-Assessment

Since April 2026, MTD for Income Tax Self-Assessment has been mandatory for:

• Self-employed individuals earning over £50,000
• Landlords with rental income over £50,000

Requirements include:

• Quarterly digital reporting of income and expenses
• Use of MTD-compatible software
• A final declaration by 31 January following the tax year

6. Business Rates Revaluation

The 2026 Business Rates Revaluation took effect on 1 April 2026, with new rateable values based on commercial rental values as of 1 April 2024.

New Multiplier Structure

Category	Multiplier
Small RHL businesses (RV up to £51,000)	38.2p
Standard RHL (RV £51,000–£500,000)	43.0p
High-value properties (RV £500,000+)	50.8p

Key Changes

• Retail, Hospitality and Leisure (RHL) Relief replaced by two permanently lower multipliers for properties with RVs below £500,000
• Transitional Relief scheme worth £3.2 billion to protect businesses from significant bill increases
• Supporting Small Business (SSB) scheme expanded to ratepayers losing RHL relief
• Bill increases capped at £800 or the relevant transitional relief cap
• Small Business Rates Relief grace period extended from one to three years

7. National Minimum Wage

From 1 April 2026, the national minimum wage rates are:

Category	Rate per Hour
Ages 21 and over (National Living Wage)	£12.71
Ages 18–20	£10.85
Under 18 and Apprentices	£8.00

The voluntary Real Living Wage (set by the Living Wage Foundation) is £13.45 across the UK and £14.80 in London.

8. Employer National Insurance (Continuing Impact)

While the major NIC changes took effect in April 2025, SMEs continue to feel their impact:

• Employer NIC rate: 15% (up from 13.8%)
• Secondary threshold: £5,000 (down from £9,100)
• Employment Allowance: £10,500 (helping offset costs for smaller employers)

The £100,000 eligibility cap for Employment Allowance has been removed, making relief available to more businesses.

9. R&D Tax Relief Pilot

HMRC has been developing a targeted R&D advance assurance pilot for SMEs. The proposed pilot would allow applicants to seek assurance on:

• Whether a project meets the R&D definition for tax purposes
• Whether overseas expenditure qualifies for relief
• Which party can claim relief for contracted-out expenditure
• Exemption eligibility from the PAYE/NICs cap

This initiative aims to provide certainty for innovative businesses before they submit claims.

10. Other Notable Changes

VAT Electronic Invoicing

From April 2029, all VAT invoices must be issued in a specified electronic format. A stakeholder roadmap will be published at Budget 2026.

Inheritance Tax – Business Property Relief

From 6 April 2026, the 100% rate of Business Property Relief (BPR) is limited to the first £1 million of qualifying assets. Assets above this threshold attract 50% relief (effective IHT rate of 20%). Unused allowance is transferable between spouses/civil partners.

Construction Industry Scheme (CIS)

HMRC received stronger powers to tackle fraud in the CIS in April 2026.

Enhanced HMRC Powers

New enhanced powers and sanctions to tackle tax advisers who facilitate non-compliance took effect on 1 April 2026.

Looking Ahead: Autumn Budget 2026

The Spring Statement was delivered on 3 March 2026 and did not contain major tax or policy changes, confirming instead that previously announced measures were coming into force.

The next major fiscal event is the Autumn Budget, scheduled for Wednesday 28 October 2026. The government has committed to one major fiscal event each year, so this is where any significant tax changes for 2027/28 would be announced.

We will publish an analysis of the Autumn Budget and what it means for SMEs once the details are known.