By Sam Bacall, Director

The new tax year started on 6 April (as you probably know) and all our clients continue to run their businesses as if not much has changed.

Which to a large degree is true – the new tax year isn’t necessarily the herald of doom or a crossed Rubicon that alters how everyone runs their business or manages their personal taxes.

However, there are a few key changes this year that make previous tax years different and we are currently in the process of getting our clients ready for them.

For non-clients, we are offering a free, quick, no-obligation tax review call where you can speak to an accountant/tax adviser and get an idea for whether you’re paying too much tax.

You can give us a call on 01618342574 or fill in the form on this page for more details.  

Alternatively, we recorded a webinar earlier this year on the key tax planning tips we have for 2026. Please click on the video below to access this content!

What’s changing in 2026/27 that is relevant to you?

Here’s a quick breakdown of the key changes and then I will go ahead and explain some of the most important ones later.

• Making Tax Digital (MTD) for Income Tax: Mandatory for self-employed individuals and landlords with qualifying income over £50,000. You must use compatible software to keep digital records and submit quarterly updates.
• Dividend Tax rise: Dividend Tax rates increase by two percentage points with the basic rate rising to 10.75 per cent (from 8.75 per cent) and the higher rate to 35.75 per cent (from 33.75 per cent).
• Inheritance Tax (IHT) changes: A new £2.5m combined cap for 100 per cent relief on Agricultural Property Relief (APR) and Business Property Relief (BPR). Value above £2.5 million attracts only 50 per cent relief (effective 20 per cent rate).
• Capital Gains Tax (CGT) increases: The tax rate for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) increases from 14 per cent to 18 per cent.
• Venture Capital Trust (VCT) relief: Income tax relief on new VCT shares is reduced from 30 per cent to 20 per cent.
• Company cars: Taxable benefit on zero-emission vehicles increases to 4 per cent.

As you can see, there’s plenty changing this year, but it can be hard to work out which are the most important alterations.

That being said, here’s a breakdown of some of the key legislative changes.

Making Tax Digital – the ongoing saga

Making Tax Digital (MTD) has actually been around for a while but was first introduced for VAT.

However, many of you will be unfamiliar with a VAT tax return so this will be the first time you’ve come across it in a meaningful way.

In short, if you fall into the below categories, you will need to submit quarterly, digital tax returns (rather than paper) to HMRC.

• Post-April 2026: Mandatory for those with income over £50,000
• Post-April 2027: Mandatory for those with income over £30,000.
• Post-April 2028: Mandatory for those with income over £20,000.

This applies to sole trades and property income (so landlords) rather than those paying Corporation or any other Tax.

You will need to use MTD-compliant software or use a bridging software within Excel, for example.

We are already well across this issue with our clients, and your best option generally is to speak with an accountant to get ready for this change.

Increase to Dividend Taxes (HMRC targeting directors’ income)

During this tax year, the Dividend Tax rates are increasing by two percentage points:

• Basic rate rising to 10.75 per cent (from 8.75 per cent)
• Higher rate to 35.75 per cent (from 33.75 per cent).

This, of course, impacts a lot of directors who currently use dividends to reduce their Income Tax liability.

It should highlight the importance of structuring your salary/dividend income to prevent paying the higher or additional rate of this tax.

Inheritance Tax (IHT) changes for 2026/27

From 6 April 2026, APR and BPR will share a combined £2.5 million allowance at 100 per cent relief, with any qualifying value above that generally receiving relief at 50 per cent, giving an effective IHT rate of 20 per cent on the excess.

Any unused portion of the £2.5 million allowance can be transferred to a surviving spouse or civil partner, and the same £2.5 million allowance also applies to the combined value of qualifying APR and BPR assets held in trust.

Capital Gains Tax on business disposals is becoming less generous

Business Asset Disposal Relief is still available, but it is no longer quite as generous as many business owners have been used to.

The relief applied at 10 per cent for qualifying disposals up to 5 April 2025, rose to 14 per cent from 6 April 2025 and has now increased again to 18 per cent for qualifying disposals made on or after 6 April 2026.

That means anyone planning an exit, sale or restructure needs to look carefully at timing, because the tax cost of a qualifying disposal is now notably higher than it was only a short time ago.

Venture Capital Trust relief now offers a smaller upfront incentive

Venture Capital Trusts still offer tax advantages, but the upfront Income Tax relief on new VCT shares has been reduced from 30 per cent to 20 per cent from 6 April 2026.

That does not mean VCTs have lost their appeal altogether, as they can still offer tax-free dividends and Capital Gains Tax exemption on disposal if the conditions are met, but it does mean the headline incentive for new investors is less generous than before.

For investors weighing up risk against reward, that reduction may make VCTs feel a little less compelling as a tax-led planning tool.

Zero-emission company cars are still attractive, but the tax advantage is narrowing

Zero-emission company cars remain relatively tax-efficient, but the taxable benefit has risen again.

For the 2026/27 tax year, cars with zero CO2 emissions carry a 4 per cent benefit-in-kind rate, up from 3 per cent in 2025/26.

In practice, that means electric company cars are still treated more favourably than many petrol or diesel alternatives, but the gap is narrowing as the Government gradually increases the appropriate percentages over time.

For employers and employees alike, it is a reminder that electric vehicles are still incentivised, just not quite as heavily as before.

Where to go for more information?

As I mentioned above, we ran a webinar on this subject earlier this year and the information remains relevant.

You can find that webinar recording here.

However, if you don’t find the answers you’re looking for or would like to discuss your tax and accounting position in more depth, please don’t hesitate to contact our team.

Get in touch with our friendly Manchester accountants and tax advisers.