Key Changes for Businesses in 2026
1) Making Tax Digital for Income Tax
The headline change arriving on 6 April 2026 is Making Tax Digital (MTD) for income tax, which replaces the annual Self Assessment return with a digital-first system of quarterly updates. If you're a sole trader or a landlord with a combined qualifying income of more than £50,000, you must follow new MTD rules from April 2026. Your qualifying income includes gross turnover from self-employment and property rental but excludes PAYE wages, dividends, and pensions. Under the new system, you'll need to:
Keep digital records using MTD-compatible software;
Submit quarterly updates to HMRC;
File an End of Period Statement and Final Declaration by 31 January.
Don't wait until March 2026 to set up your software. HMRC is running a voluntary testing programme now – signing up early will help you get familiar with the new system before it becomes mandatory. From April 2027, self-employed individuals with a qualifying income over £30,000 will need to sign up to MTD, and those with income between £20,000 and £30,000 will follow from April 2028.
2) National Living Wage and Minimum Wage Increases
The National Living Wage will rise to £12.71 per hour from 1 April 2026 for workers aged 21 and over – an increase of £0.50 per hour (4.1%).
18–20 year olds: £10.85 per hour (8.5% increase);
16–17 year olds and apprentices: £8.00 per hour (6.0% increase).
3) Employer National Insurance
The employer National Insurance changes introduced in April 2025 continue to apply, with significant cost implications for businesses:
Employer NI rate: 15% (up from 13.8%);
Secondary threshold: £5,000 per year (down from £9,100);
Employment Allowance: £10,500 (helping smaller businesses offset costs).
For a business with 10 employees earning £30,000 each, that's roughly £6,150 extra per year in employer NICs.
Sole director companies are not eligible for Employment Allowance. However, if a spouse or family member carries out genuine work for the business, a market rate salary over £5,000 for them could make the company eligible.
4) Employment Rights Act 2025 – What Changes in 2026
The Employment Rights Bill is now the Employment Rights Act 2025. It became law on 18 December 2025. Key changes taking effect in 2026 include:
From April 2026:
Paternity leave will become a 'day one right', allowing someone to give notice of leave from the first day of employment;
Reforms to Statutory Sick Pay (see below);
Simplified trade union recognition processes.
From October 2026:
Employers will be expected to give qualifying workers an offer of guaranteed hours if the hours worked regularly exceed the contract;
Protection against fire and rehire practices strengthened;
Employers must inform workers of their right to join a union.
From January 2027:
Protection from unfair dismissal will become a right after 6 months of being in a job(currently 2 years).
5) Statutory Sick Pay Reforms
The Employment Rights Bill will introduce significant changes to Statutory Sick Pay from April 2026. Key changes:
Waiting days will be abolished. SSP will be payable from the first day of sickness absence.
The Lower Earnings Limit will be removed. All employees, regardless of income level, will be eligible for SSP.
The weekly SSP rate increases to £123.25.
Before April 2026: A part-time worker earning £100 per week falls ill. They receive no SSP (below earnings threshold) and must wait three days even if eligible.
After April 2026: The same worker is entitled to SSP from day one, calculated at 80% of their average weekly earnings (£80).
6) Tax Changes for Company Directors
If you operate through a limited company and pay yourself dividends, be aware that the standard dividend tax rate is increasing from 8.75 per cent to 10.75 per cent for the 2026-27 tax year. The upper rate is increasing from 33.75 per cent to 35.75 per cent from April 2026. Additionally, capital gains tax for business asset disposals is increasing to 18 per cent on 6 April 2026, affecting those selling qualifying business assets.
How to Prepare:
Start preparing now by:
Choosing MTD-compatible software and practising quarterly reporting;
Reviewing payroll budgets for increased wage and NI costs;
Updating employment contracts and sickness policies;
Checking your business rates valuation on the VOA website.
FAQ:
1. When does Making Tax Digital for Income Tax start?
MTD for Income Tax begins on 6 April 2026 for self-employed individuals and landlords with combined qualifying income over £50,000.
2. What software do I need for MTD?
You'll need HMRC-recognised MTD-compatible software that can keep digital records and submit quarterly updates. Popular options include Xero, QuickBooks, and FreeAgent.
3. How much is the National Living Wage from April 2026?
The National Living Wage increases to £12.71 per hour for workers aged 21 and over from 1 April 2026.
4. Can I still claim Employment Allowance as a sole director?
No, sole director companies without other employees remain ineligible for Employment Allowance.
Conclusion:
The year 2026 marks a turning point for UK businesses. Between Making Tax Digital, employment law reforms, and rising wage costs, the administrative and financial burden is set to increase – particularly for smaller employers. The good news? Most of these changes have been announced well in advance, giving you time to prepare. Businesses that act now – by adopting digital record-keeping, reviewing their payroll budgets, and updating employment policies – will be far better positioned than those who leave it until the last minute.
