Small Business Tax Changes in 2026

The most significant change for many small business owners in 2026 is the introduction of Making Tax Digital for Income Tax.

From 6 April 2026, sole traders and landlords with more than £50,000 of qualifying income from self-employment and property must keep digital records and submit information to HMRC using compatible software. Intelligent

Making Tax Digital for Income Tax

The rules apply in stages:

• From April 2026: qualifying income over £50,000
• From April 2027: qualifying income over £30,000
• From April 2028: qualifying income over £20,000

Qualifying income is the total gross income from self-employment and property before expenses are deducted.

Businesses in scope must:

• keep digital records of income and expenses;
• use MTD-compatible software;
• send quarterly updates to HMRC; and
• complete the final tax submission through the MTD system.

The quarterly updates do not replace the final tax return. They are an additional reporting requirement.

Making Tax Digital for VAT

Making Tax Digital for VAT is already mandatory for VAT-registered businesses.

Businesses must keep digital records and file VAT returns using compatible software.

The current VAT registration threshold is £90,000 of taxable turnover. The deregistration threshold is £88,000.

Corporation Tax rates

The Corporation Tax structure remains:

• 19% for profits up to £50,000
• 25% for profits above £250,000
• marginal relief for profits between those amounts

The thresholds can be reduced where companies are associated, so the effective position may differ for business owners with more than one company.

MTD penalties

For the 2026/27 tax year, HMRC will not issue penalty points for late quarterly MTD for Income Tax updates.

Normal penalties still apply for late tax returns and late tax payments.

From 6 April 2027, the points-based penalty regime will apply to missed quarterly deadlines. Once four penalty points are reached, a £200 financial penalty can apply.

What businesses need to do

Sole traders and landlords should now check:

• whether they fall within the £50,000 qualifying-income threshold;
• whether their accounting software is MTD-compatible;
• whether all required records are kept digitally;
• who will be responsible for quarterly submissions; and
• whether their accountant or bookkeeper is ready for the new process.

HMRC publishes a list of compatible software and step-by-step guidance for businesses moving onto MTD.

Why good records matter

Up-to-date financial records are now increasingly important for both tax compliance and general business management.

Clear records make it easier to monitor cash flow, profitability and liabilities. They are also valuable when raising finance or preparing a business for sale, because buyers will normally expect recent and reliable financial information.

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