New year, new pressures: What small firms should watch in early 2026

January always arrives with a slightly false promise of a clean slate.

For small businesses, start-ups, sole traders and founders, it's usually the opposite. It's a month where cash, compliance and cost pressures pile up at the same time.

Right now, the backdrop is still uneasy. Consumer spending intent remains cautious going into 2026, with many people planning to cut discretionary spend.

Business confidence has also softened again, with the British Chambers of Commerce reporting the weakest turnover expectations in three years.

And while figures aren't surging month-on-month, data from the Insolvency Service shows the number of companies becoming insolvent remains high compared to how they were before the pandemic – even if November 2025 was down on both October and the year before.

Furthermore, concerns have emerged that some weaker firms, kept alive through the era of cheap money, may struggle as costs bite, even with interest rates now starting to ease.

Interest rates are falling, but it doesn't mean money is cheap

The Bank of England cut rates to 3.75% in December 2025 and expects rates to fall gradually, depending on how inflation and pay growth evolve.

Although that should feed through into lower borrowing costs over time, it won't feel like relief for all those firms facing refinancing payments, thin margins or customers who are already stretching payment terms.

One practical knock-on effect is that HMRC interest rates on late payments move with interest rates. HMRC confirmed it would revise late payment interest following the December cut. If you are carrying tax debt, the cost of doing so still matters.

Employment law has changed, and more change is coming

The Employment Rights Act 2025 received Royal Assent on 18 December 2025. And the key point for small employers is timing.

Most measures are phased, with changes coming into force across 2026 and 2027 rather than everything happening at once.

If you employ people, don't wait for the first enforcement deadline to start paying attention.

This is the month to identify which parts of the Act will hit your business model first, then tidy up contracts and policies before they become expensive problems.

Wage costs rise again from April

From April 2026, the National Living Wage (21+) rises to £12.71, with larger percentage uplifts for younger workers and apprentices.

For labour-intensive firms, the issue isn't just the headline rate. It's compression across pay bands, overtime costs and the pressure to keep experienced staff feeling fairly treated.

Business rates reset from April, with winners and losers

Business rates in England are heading into a major reset from 1 April 2026 as the 2026 revaluation takes effect.

The government has set out a move towards permanently lower multipliers for eligible retail, hospitality and leisure properties, funded by a higher multiplier for the highest-value properties.

This isn't one of those changes you can safely ignore until you get a bill. Revaluation creates sharp changes between similar businesses on the same street.

If you run premises-based trade, it's worth checking your exposure early, including transitional relief arrangements.

Sole traders: The January tax pinch-point is here, and MTD is next

The immediate deadline is Self Assessment. Your online return and any tax owed is due by 11:59pm on 31 January 2026.

If you use payments on account, remember you may be paying both a balancing payment and your next instalment, which can feel like a double hit.

If you can't pay in full, HMRC is actively pointing people towards Time to Pay, which you can set up online for debts up to £30,000 in many cases.

Then comes the structural change. Making Tax Digital (MTD) for Income Tax becomes mandatory from 6 April 2026 for sole traders and landlords with qualifying income over £50,000.

Companies House reform continues, with new costs and new checks

Companies House reform is underway, with identity verification becoming a legal requirement from 18 November 2025, using GOV.UK One Login routes either directly or via authorised agents.

On top of that, Companies House fees change from 1 February 2026, including a higher incorporation fee and a higher confirmation statement filing fee.

As a founder, make sure your directors and PSCs (people with significant control) are ready for ID checks and that filing calendars are up to date.

Some good news – investment relief has started

From 1 January 2026, the government introduced a new 40% first-year allowance for qualifying plant and machinery, aimed at encouraging business investment.

For some firms, that shifts the economics of upgrading kit, vehicles, fit-outs and tools. It isn't a reason to spend for the sake of spending, but it may bring forward investment you were already planning.

If you sell products, don't miss the packaging changes

Extended producer responsibility for packaging is becoming more real in operational terms.

Government guidance on collecting packaging data has been updated recently, and many producers will need to collect additional information for future reporting.

If you're an e-commerce seller, an importer or a manufacturer, or you place packaged goods on the UK market, it's worth checking whether you're in scope and whether your supply chain data is good enough.

What you should do this January

If you want a simple plan for the first month of 2026, focus on the few actions that protect cash and reduce avoidable risk.

• Get ahead of 31 January: File, pay or put a Time to Pay plan in place early.

• Model April costs now: Wage increases, plus any knock-on pay compression.

• Check your business rates exposure: If you have premises, don't wait until April.

• Do a quick HR compliance scan: Map which changes to the Employment Rights Act matter most to your workforce and start the tidy-up.

• Make Companies House admin boring again: Sort ID checks and get the February fee changes in your diary.

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