Tax changes: Small businesses face a rising tide of costs from April 2026
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Posted: Wed 1st Apr 2026
8 min read
Like a credit card bill, the list of things affecting small businesses from this month is really starting to add up! Let’s take a practical look:
Sole traders – mostly hassle
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 £50,000 in your 2024-25 tax return.
The minimum you need is:
Income and costs on a spreadsheet
Filing-only software before 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.
Top tip: Your life will be a lot easier if income and costs go through one bank account. Export a .csv file, sort it appropriately, tag each category and file to HMRC using your MTD software.
£50,000 is the first-year threshold, reducing to £30,000 and £20,000 over the next two years, even if you make a loss!
If you’re thinking of setting up a side hustle, ensure you budget for quarterly reporting. MTD ITSA doesn’t yet apply to partnerships, so you may decide, instead, to set up a partnership, but there are other costs and risks to this, too.
Limited companies – mostly cost
Some businesses are instead becoming limited companies to avoid MTD ITSA! However, they cost more to run, and the tax costs have increased.
Dividend tax increases - 8.75% to 10.75%, 33.75% to 35.75%, no change to 39.35%
If, as a sole shareholder-director, you normally take a £12,570 director salary and £37,700 of dividends, your tax bill will increase:
2025-26 income tax: £3,255
2026-27 income tax: £3,999
An increase of £744
On top of the employer’s NI increase from last year of £656, the total increase for you as a basic rate taxpayer is now £1,400 every year.
Benefit in kind for electric cars - increase from 3% to 4%
If you saved corporation tax for buying an electric car, the benefit-in-kind will increase. For a £50,000 car, the 1% increase is £500, which at 20% and 15% NI is a total annual tax increase of £175.
Electric cars generally remain tax efficient for your limited company through receiving 100% corporation tax relief because a £50,000 car saves at least £9,500 of corporation tax!
Penalties for late filing of corporation tax returns have doubled
When a corporation tax return misses the 12-month deadline, the penalty for late filing will increase from £100 to £200. After three months, a further penalty is due, which will increase from £200 to £400. Often, directors forget about dormant companies, which are also subject to these penalties.
EMI share option company thresholds
EMI share options should help growth enabling small companies to attract talent without paying the highest salaries, but small businesses need simplifications, not threshold changes, to keep their costs down.
The increase from 10 to 15 years in which an option can be exercised will be helpful for options granted on or after 6 April 2026.
EIS company thresholds
A lot of thresholds already in the millions are being doubled, helping larger companies obtain more investment; however, the smaller SEIS thresholds have stayed the same.
Both sole traders and limited companies – mostly cost
National Minimum Wage increased from £12.21 to £12.71
If you have one over-21-year-old employee on the NMW working 37.5 hours per week, your costs will increase:
2025-26 Pay 37.5 x £12.21 x 52 weeks = £23,809 + Employer NI of £2,821 + Pension of £714 = £27,344
2026-27 Pay 37.5 x £12.71 x 52 weeks = £24,784 + Employer NI = £2,967 + Pension of £743 = £28,494
An increase of £1,150 per year
Statutory Sick Pay increase
The flat rate for a normal five-day working week, a one-week sickness, now costs £123.25 instead of £47.50 under the old rules, an increase of £75.75 per week.
Business rates increase
Despite claims to the contrary, there are now many increases being paid. If you use a property in England in retail, hospitality or leisure with a rateable value of say £15,000, your cost increases:
2025-26 £15,000 × 49.9p = £7,485, less 40% RHL relief (£2,994) = £4,491.
2026-27 £15,000 × 38.2p = £5,730.
An increase of £1,239 a year.
With Supporting Small Business relief, the increase is capped at the higher of £800 or 5%. Here, 5% of £4,491 is £224.55, so the cap is £800 and the bill is £5,291.
An increase of £800 a year.
Capital allowances - reduction in write-down rate from 18% to 14%
Where there are businesses in tax pools, 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 a mind-boggling 30 years!
Instead, ensure you get 100% reliefs where available, such as using the annual £1m AIA allowance, plenty for most.
BADR (Business Asset Disposal Relief or Entrepreneurs Relief) - tax increase from 14% to 18%
Once you’ve built up your business for sale, for a £1 million capital gain, the maximum allowed on your tax bill after £3,000 tax free, has now increased by:
2025-26 capital gains tax: £139,580
2026-27 capital gains tax: £179,460
An increase of £39,880
Inheritance tax - Business Property Reliefs - reduced from unlimited to £2.5m and 20% above £2.5m
If, instead, you decided to hold onto your business, your estate may now pay IHT when it didn’t before.
With £2.5 million per spouse, a total of £5 million covers many businesses, but for those exceeding this, you may want to look at family gifting either to individuals or trusts, but beware of the capital gains tax and other implications!
Unfortunately, with even more changes on the horizon, you'll see that business taxes continue to become more costly and complicated. Therefore, taking appropriate advice has never been more important.
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