The 2026/27 Tax Changes Every Small Business Needs to Know

A new tax year always brings updates, but the 2026/27 changes are especially important for small businesses, sole traders and limited companies. Whether you’re managing your own books or working with an accountant, understanding what’s new can help you stay compliant, avoid penalties and plan ahead with confidence.

At MH Accounting Services, we break everything down in plain English so you know exactly what matters and why.

Here’s what you need to know for the 2026/27 tax year.

1. Income Tax & Allowances: What’s Changing?

The government has introduced several adjustments that affect small business owners, directors and sole traders. While the exact thresholds may shift slightly each year, the key takeaway is this:

• Personal Allowance remains frozen

• Higher-rate thresholds remain frozen

• More people may drift into higher tax bands due to wage increases

This is known as fiscal drag, and it means tax planning is more important than ever.

What this means for you:  If your income has increased, you may now fall into a higher tax bracket without realising it. Reviewing your salary/dividend mix or allowable expenses can help reduce your liability.

2. National Insurance: Continued Adjustments

The 2026/27 year continues the government’s phased changes to National Insurance contributions.

For small businesses, this affects:

• Employee NICs

• Employer NICs

• Self‑employed Class 2 and Class 4 NICs

Even small percentage changes can impact payroll budgets, so it’s worth reviewing your staffing costs and forecasting ahead.

3. Corporation Tax: Staying Aware of the Two‑Tier System

The two‑tier Corporation Tax structure remains in place:

• 19% for companies with profits under the lower threshold

• A higher rate for companies above the upper threshold

• Marginal relief for those in between

If your profits are growing, you may move into a different band, and that can affect cash flow.

Tip:  Now is a good time to review your allowable expenses, capital investments and director remuneration strategy.

4. VAT: Thresholds and Registration Rules

The VAT registration threshold continues to be reviewed annually, and more small businesses are finding themselves close to the limit.

If your turnover is approaching the threshold, it’s important to plan ahead rather than wait until the last minute. Voluntary registration can sometimes be beneficial, especially for B2B businesses.

5. Making Tax Digital (MTD): What Small Businesses Must Know for 2026/27

This is one of the biggest changes affecting small businesses this year.

MTD for Income Tax is expanding, and it’s mandatory for more people.

From April 2026 onwards:

• More sole traders and landlords must keep digital records

• Quarterly updates must be submitted through approved software

• End‑of‑period statements replace some traditional reporting

• Spreadsheets alone will no longer be enough

If you earn above the MTD threshold, you must use compatible accounting software.

What this means in plain English:  You’ll need to keep your records digitally and send updates to HMRC every few months instead of once a year.

This may sound daunting, but with the right setup it actually makes life easier — real‑time figures, fewer surprises, and less last‑minute stress.

At MH Accounting Services, we help clients transition smoothly to MTD‑compliant systems like Xero, QuickBooks and FreeAgent.

6. Allowances & Reliefs: Don’t Miss Out

A new tax year is the perfect time to review:

• Annual Investment Allowance (AIA)

• Capital allowances

• Dividend allowances

• Mileage and home‑working claims

• R&D relief (if applicable)

Many small businesses miss out simply because they don’t know what they can claim.

7. Why These Changes Matter

Tax changes don’t just affect compliance, they affect:

• Profitability

• Cash flow

• Payroll planning

• Growth decisions

• Your take‑home pay

Understanding the 2026/27 updates helps you make smarter financial choices throughout the year.

Need help navigating the new tax year?

At MH Accounting Services, we specialise in supporting small businesses, sole traders and limited companies through every tax change, without the jargon.

Whether you need help with:

• Making Tax Digital

• Year‑end accounts

• VAT

• Payroll

• Tax planning

• Bookkeeping

• Or simply understanding what the new rules mean for you

We’re here to make it simple.

Get in touch today and let’s make the 2026/27 tax year your smoothest yet.

07527179365

michelle@mhaccountingservicesltd.co.uk