April 6 came and went. If your business treated it as just another Monday, you may already be behind.
The 2026/27 tax year ushered in the most significant package of tax changes in years — a convergence of rate rises, relief restrictions, and digital mandates that, taken together, amount to a compliance cliff. This is not a single headline change. It is six simultaneous shifts, each demanding attention from finance directors, business owners, and their advisers.
Here is what changed, what it means, and what you should be doing about it right now.
1. Making Tax Digital for Income Tax Is Live
After years of delays and false starts, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is finally mandatory. From 6 April 2026, self-employed individuals and landlords with qualifying gross income exceeding £50,000 must keep digital records using compatible software and submit quarterly updates to HMRC.
The first quarterly update — covering 6 April to 5 July 2026 — is due by 7 August 2026. That is less than four months away.
The practical implications are considerable. Businesses that have been operating on spreadsheets or paper records need MTD-compatible software in place now, not in July. The good news is that HMRC has confirmed a soft landing for the first year: late submission penalty points will not apply to quarterly updates during 2026/27. But that grace period should not be mistaken for an excuse to delay. The digital record-keeping obligation is immediate, and businesses that wait until the first deadline approaches will find the transition far more painful.
For partnerships and those with income between £30,000 and £50,000, mandation follows in April 2027. The smart move is to get ahead of it now.
2. Inheritance Tax: The APR and BPR Cap
The changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) represent the most politically charged element of this year’s tax reset. From 6 April 2026, the combined 100% relief from inheritance tax is capped at £2.5 million per individual. Qualifying assets above that threshold receive only 50% relief, resulting in an effective IHT rate of 20% on the excess.
For a married couple, this means up to £5 million of agricultural or business assets can still pass free of IHT — on top of existing nil-rate bands. HMRC estimates that around 185 estates claiming APR will actually pay more tax as a result, meaning approximately 85% of agricultural estates will be unaffected.
But the estates that are affected tend to be substantial family farming operations and established owner-managed businesses — precisely the kind of clients who need proactive succession planning. If you are advising a business owner with combined APR/BPR-qualifying assets above £2.5 million, the time for restructuring conversations was six months ago. The next best time is now.
Additionally, shares listed on the Alternative Investment Market (AIM) no longer qualify for 100% BPR. They now attract a flat 50% relief rate across their entire value, which fundamentally changes the IHT calculus for investors holding AIM portfolios as part of their estate planning strategy.
3. Dividend Tax: A 2% Hit Across the Board
Dividend tax rates have increased by 2 percentage points at every level. The basic rate rises from 8.75% to 10.75%. The higher rate climbs from 33.75% to 35.75%. The additional rate moves from 39.35% to 41.35%.
For owner-managed businesses that rely on dividend extraction as a core part of their remuneration strategy, this is a meaningful increase. Combined with the reduction in the dividend allowance to £500 (already in effect since April 2024), the tax efficiency of dividend-based remuneration continues to erode.
Finance directors should be revisiting salary-versus-dividend calculations now, particularly for director-shareholders. In some cases, pension contributions, employer NICs restructuring, or other extraction methods may offer better after-tax outcomes than they did twelve months ago.
4. Capital Allowances: Writing Down Allowance Cut
The main rate of writing down allowance (WDA) for plant and machinery has been reduced from 18% to 14%. This applies from 1 April 2026 for corporation tax purposes and 6 April 2026 for income tax.
While the Annual Investment Allowance remains at £1 million — providing 100% first-year relief on qualifying expenditure up to that threshold — businesses with significant capital expenditure programmes that exceed the AIA will feel this change acutely. The slower rate of tax relief on the excess means higher effective costs for capital-intensive businesses over the life of the assets.
If your business is planning significant equipment purchases, the interaction between the AIA, full expensing (where available for companies), and the reduced WDA rate needs careful modelling. The optimal timing and structure of capital expenditure has shifted.
5. Business Asset Disposal Relief: CGT at 18%
The Capital Gains Tax rate on qualifying disposals under Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief) has risen to 18%, up from 14% in 2025/26 and 10% the year before that. The lifetime limit remains at £1 million.
For business owners contemplating an exit, this is a significant consideration. A disposal qualifying for BADR that would have attracted a 10% CGT rate two years ago now faces an 18% rate — an 80% increase in the tax charge. While 18% is still below the main CGT rates, the gap has narrowed considerably, and the incentive effect of BADR has been materially diluted.
If you are advising on a transaction timeline, the BADR rate trajectory should be part of the conversation. There is no indication that the rate will decrease, and further increases cannot be ruled out.
6. Working From Home Allowance: Gone
The tax-free working from home allowance — which allowed employees to claim up to £6 per week without evidence — has been removed from 6 April 2026. Employees who work from home can still claim tax relief for additional household costs, but only where they can provide evidence of the actual costs incurred.
For employers, this is primarily a communications issue. Staff who have been claiming the allowance through their tax code or via a P87 claim need to understand that the automatic entitlement has ended. For payroll teams, it is worth checking whether any salary sacrifice or homeworking arrangements reference the allowance and need updating.
What Should You Do Now?
The sheer breadth of these changes means that a single response will not suffice. But there are immediate priorities.
First, if MTD for ITSA applies to you or your clients, confirm that compatible software is in place and that the transition to digital record-keeping has started. Do not wait for the August deadline.
Second, review remuneration structures for owner-managed businesses in light of the dividend tax increase and the BADR rate rise. The optimal mix of salary, dividends, pension contributions, and other benefits will have shifted for many director-shareholders.
Third, for clients with significant agricultural or business assets, revisit succession and estate plans in light of the APR/BPR cap. Consider whether lifetime transfers, trust structures, or insurance solutions should be part of the conversation.
Fourth, model the impact of the reduced WDA rate on any planned capital expenditure programmes and ensure that full expensing and AIA are being used to maximum effect.
These are not theoretical concerns. They are live, in-effect changes to the tax landscape that demand action now — not at the year end.
Talk to Tanous about navigating the 2026/27 tax changes — contact us at tanous.co.uk.