The start of a new tax year tends to get framed as an administrative event — swap in the new rates, update the payroll software, move on. And for a quiet year, that is largely true. The 2026/27 tax year is not a quiet year.

New tax year, new tax rates is an accurate summary, but the changes running through this tax year go further than headline numbers. Dividend tax rates have risen. The Capital Gains Tax rate on business disposals under Business Asset Disposal Relief has gone up again. Making Tax Digital for Income Tax has finally gone live for the first tier of sole traders and landlords. And the income tax and National Insurance thresholds remain frozen — which, with any wage growth, quietly pushes more people into higher bands.

What follows is our take on what actually matters for SME owners, directors, and self-employed clients — and where we think the planning opportunities are hiding inside what looks like a straightforward rates update.

For 2026/27, the core income tax structure for England and Northern Ireland is unchanged in design but meaningful in effect. The Personal Allowance remains frozen at £12,570. Basic rate tax of 20% applies on taxable income up to £50,270. Higher rate at 40% runs from £50,271 to £125,140. Above that, the additional rate of 45% applies — and the Personal Allowance has been fully withdrawn at that point, having tapered by £1 for every £2 of adjusted net income above £100,000.

None of those numbers are new. But frozen thresholds in an inflationary environment are not neutral — they are a tax rise by another name. If your salary or drawings have risen with inflation over the last few years, a higher proportion of your income is now sitting in the 40% band than it was three years ago, even if your real-terms income has barely moved.

For director-shareholders drawing a mix of salary and dividends, this reinforces why the optimal salary level needs reviewing annually rather than being set and forgotten. The interaction between the Primary Threshold for National Insurance (£12,570 per year for employees) and the income tax Personal Allowance has not changed, but as dividends become less tax-efficient (more on that below), the salary-and-dividend calculus shifts.

From April 2026, dividend tax rates have increased by 2 percentage points across the basic and higher rate bands. In practical terms, this means the tax on dividends paid to a director-shareholder in the basic rate band has risen, and the higher rate burden is now meaningfully higher than it was a few years ago.

The Dividend Allowance — the amount of dividend income you can receive tax-free — has been cut progressively over recent years and now sits at a level that many director-shareholders exhaust quickly. Combined with the rate increase, the effective tax cost of extracting profit via dividends from a limited company is noticeably higher than it was at the start of the decade.

Our view: this does not fundamentally change the case for operating through a limited company for most SME owners, but it does change the extraction strategy. Pension contributions, salary sacrifice, and timing of dividend payments all become more relevant planning levers when the dividend rate goes up. If you have been running the same salary-and-dividend split for two or three years without revisiting it, the 2026/27 position is worth reviewing — the optimal split may have shifted.

It is also worth checking whether retained profits that could be extracted more efficiently as salary (within the NI thresholds) are being left in the company unnecessarily, where they will face Corporation Tax and then dividend tax on extraction.

Capital Gains Tax reform has come in stages over the last two years. Business Asset Disposal Relief (BADR) — previously Entrepreneurs' Relief — was the preferential rate that made business sales tax-efficient for qualifying owners. The rate has been rising: from April 2026, it moves to 18%, up from 14% in the previous year.

For anyone planning a business sale, a partial exit, or a management buyout in the near term, the direction of travel here is important. The rate is still meaningfully below the standard CGT rates on business assets, so BADR retains value — but the window of historically low rates that existed even two years ago has closed.

If a disposal was already being contemplated, the timing and structuring of that transaction now has a direct and quantifiable tax cost attached to the choice of when to proceed. This is exactly the kind of decision where proper advice — looking at BADR eligibility, the structure of any deal, and the interaction with income tax in the year of disposal — pays for itself many times over.

We would also flag that Investors' Relief, which applies to gains on shares held in unlisted trading companies by individuals who are not employees or officers, has its own separate rate position. If you hold shares in a business in that capacity, it is worth checking the current rates with your adviser, as the CGT landscape has moved more in the last two years than in the previous decade.

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) launched on 6 April 2026 for the first tranche of taxpayers: sole traders and landlords with total gross income (receipts) above £50,000 per year. If you are in that group and were not already prepared, the obligation is already active.

What MTD for ITSA requires is not just digital record-keeping — it requires quarterly submissions of income and expense summaries to HMRC via compatible software, plus a final year-end declaration. It is a substantive change to how tax information flows, not a minor admin update.

For clients already using cloud accounting software with up-to-date records, the transition is manageable. For those still running spreadsheets or paper records, it requires a real change in process. The penalty regime for non-compliance is points-based, accumulating over time — so leaving this until a submission is missed is not a sensible strategy.

The second tier — sole traders and landlords with income above £30,000 — is due to follow in April 2027, and the £20,000 threshold tier is expected in 2028. If you are below the £50,000 threshold today, the direction of travel is clear. Getting organised now rather than scrambling at the next threshold date is, in our experience, almost always less costly.

For more detail on what MTD for ITSA means in practice, see our piece on why the latest Making Tax Digital updates matter to your startup.

One change that often gets overlooked in the annual rates round-up, but which affects a significant number of SME owners with mature businesses, is the reform to Agricultural Property Relief and Business Property Relief from April 2026.

Previously, qualifying business and agricultural assets could attract 100% IHT relief without a combined cap. From April 2026, the combined 100% relief is limited to £2.5 million across Agricultural Property Relief and Business Property Relief together. Assets above that threshold attract a reduced 50% relief, meaning an effective IHT rate of 20% applies to the excess.

For owners of smaller businesses this may feel remote, but for those with higher-value trading companies, farming businesses, or significant qualifying asset portfolios, this is a material change. The planning response — which might involve business structures, gifting, trusts, or life assurance — is not something to leave until an estate event triggers it. The time to think about this is now, while options are open.

If this is relevant to your situation, it is worth raising alongside your regular year-end tax review rather than treating it as a separate, specialist conversation to have later.