Tax Changes From April 2026

As Spring is 'just around the corner' 😀 it must be the beginning of a New Tax Year, so what are the 12 main changes you need to know effective from April 2026?

1. Dividend Tax Increases - 8.75% to 10.75%, 33.75% to 35.75%, no change to 39.35%

Another reason for owner-managers to consider higher salaries instead of dividends from April 2026.

Always check your figures as there are many variables to consider: income tax rates, NI thresholds, NI employer allowance availability, corporation tax rates, other income.

At the same time some non-residents, typically with UK rental income and dividend income, will see their UK tax increase from the abolition of a notional 8.75% tax credit. The disregarded income calculation remains in force so, for example, where large dividends are received there is no tax increase from before and after April 2026.

Finally, temporary non-residents can no longer rely on tax-free dividends paid from profits in their close company arising after they left the UK, as they will also be taxable, subject to double tax relief, if any.

2. Making Tax Digital - Income Tax Self Assessment (MTD ITSA) - Quarterly reporting 

Get yourself geared up if your sole trader turnover and landlord gross rents together were over £50k in your 2024/25 tax return.

The minimum is to have income and costs on a spreadsheet and have filing-only software ready for the first deadline of 7 August. There's no need to spend a lot but beware of free software which rarely remains free and will use up your time.

Your life will be a lot easier if all income and costs go through one bank account for each sole trader business and your landlord business. 

3. No Tax Relief For Unreimbursed Home Working Costs

If your employer doesn't reimburse you for your home working costs, you can no longer claim tax relief against your employment income.

Check your Tax Codes for the 2026/27 tax year to ensure any historical deductions aren't included, otherwise you'll need to repay this tax relief in your tax return, by an adjusted Tax Code or P800 issued to you in due course. This includes the £6 per week commonly claimed by staff.

4. Benefit In Kind For Electric Cars - Increase from 3% to 4%

For a £50,000 electric car, the benefit in kind will increase from £1,500 to £2,000, increasing the tax paid for a higher rate taxpayer from £600 to £800.

Electric cars remain generally tax efficient particularly when purchased through your company enjoying 100% corporation tax relief.

5. Non-Residents Voluntary Class 2 National Insurance Payments - No longer available

Where the full 35 qualifying years hasn't been achieved, or may not be, sole trader or partnership taxpayers have often topped up their missing years by paying voluntary Class 2 national insurance. This option will no longer be available to non-residents.

Similarly, the more expensive, but potentially still cost effective, route of making Class 3 contributions, will require qualifying residencies to be for much longer at 10 years rather than 3 years.

6. Capital Allowances - Reduction in write down rate from 18% to 14%

Not a main issue for most owner-managed businesses, but where there are some historical pool tax written down values brought forward, the already very slow write down rate of 18% is now an even slower rate of 14%. This increases the number of years for a full write down from over 23 years to over 30 years! 

The main thing is to ensure you get 100% reliefs wherever they are available such as using the annual £1m AIA allowance.

7. EMI Share Option Company Thresholds - Large increases

EMI share options really should help growth by enabling small-medium companies to attract talent without paying the highest salaries or bonuses, however they aren't adopted as much as they could be.

Perhaps increasing the thresholds will help by opening up EMI to larger companies such as those with gross assets of £120 million, but it's the smaller companies that need help with simplification of the rules to keep their costs down. Thresholds for employees remain unchanged at a maximum of £250,000.

The increase from 10 to 15 years in which an option can be exercised will be very helpful for options granted on or after 6 April 2026 and perhaps help make these more attractive to some owner-managed businesses.

8. EIS Company Thresholds - Large increases

A lot of thresholds already in the millions are being doubled and should help larger companies obtain more investment, however the smaller SEIS thresholds stay the same therefore favouring the larger end of the SME market.

We see the investor side of this too, so we may see more investments being made by higher net worth clients keen to help a growth company. 

9. BADR - Entrepreneurs Relief - Tax increase - 14% to 18%

This compares with 18% or 24% for other assets.

As 18% applies only if you remain a basic rate taxpayer, you'll often find yourself paying 24% and therefore the BADR rate of 18% is favourable. As the maximum capital gain covered is a 'lifetime' limit of £1m, the maximum tax saved by BADR is £60,000.

Although it's called a 'lifetime' limit, this in practice really means gains from 2008 when Entrepreneurs Relief first came into existence.

Interesting detrimental symmetry between the reduction in capital allowances pool tax relief from 18% to 14% and BADR tax increases from 14% to 18%!

10. Inheritance Tax - Business and Agricultural Property Reliefs - Reduced from unlimited to £2.5m and 20% above £2.5m

As widely included in the press, mostly due to farmer protests who suffer from being asset rich-cash poor, eligible trading businesses and farms will start to pay IHT on their estates instead of an unlimited relief.

With £2.5m per spouse, a total of £5m covers many businesses and farms, but for those exceeding this you may want to look at family gifting either to individuals or trusts.

11. Inheritance Tax - Relief for charitable legacies limitations

To help ensure legacies are directed towards UK charities (or eligible sports bodies), gifts must be made direct to the charity, rather than via trustees who may make some payments outside of the UK.

12. Penalties For Late Filing - Corporation Tax Returns - Doubled

This is probably a good idea as these penalties are very out-of-date and rewards compliant taxpayers.

As soon as a corporation tax return misses the 12 month deadline, the penalty for late filing will increase from £100 to £200. If the return still isn't filed within the next 3 months, a further penalty is due, currently £200, which will increase to £400.

Often, directors forget about dormant companies, which are also subject to these penalties, unless HMRC has agreed in advance and hasn't sent the company a notice to file a return.

Unfortunately, with even more changes on the horizon, you'll see that tax continues to become more and more complicated. Therefore, taking appropriate advice has never been more important which may include independent financial and solicitor advice aswell as tax advice.