May 2026 Tax & Business Update: What You Need to Know
The UK tax and regulatory landscape continues to evolve, with several key changes now in effect and others on the horizon. From Making Tax Digital to employment law reforms and shifts in estate planning, understanding these developments early can help you plan more effectively and avoid unnecessary costs.
Below is a summary of the most important updates.
Making Tax Digital Is Here — Are You Ready?
Making Tax Digital (MTD) is now a reality for many taxpayers.
If you are a sole trader or landlord earning over £50,000 annually from self-employment or property income, you are now required to:
Maintain digital records
Use HMRC-compatible software
Submit quarterly updates
Despite extensive communication from HMRC, adoption has been slow. As of March, only around 10% of affected taxpayers had signed up.
The first quarterly submission deadline is 7 August 2026.
While penalties are relaxed during the first year, submissions must still be completed before filing your 2026/27 tax return.
Choosing the Right Software
HMRC does not provide free software, so selecting the right platform is essential. Your system should:
Track income and expenses digitally
Submit quarterly updates directly to HMRC
Integrate multiple income sources into one view
If you are already VAT-registered, your existing software may already be compatible. Some banks are also beginning to offer free tools, which may be worth exploring.
Key Takeaway
Digital record-keeping is no longer optional. Early adoption will save time, reduce risk, and ensure compliance.
Estate Planning: Time for a Review?
Changes to inheritance tax (IHT) reliefs for business and agricultural property came into effect on 6 April 2026.
What’s Changed
100% relief now applies up to £2.5 million
Assets above this threshold receive 50% relief
Unused allowances can transfer between spouses
While the threshold increase is helpful, many families remain exposed to higher tax liabilities.
Planning Opportunities
Review wills to maximise available reliefs
Consider lifetime gifting (subject to the 7-year rule)
Use trusts strategically to reduce exposure
Explore insurance to cover potential liabilities
These rules are complex and highly situational, making professional advice essential.
Property Strategy: Should You Incorporate?
With tax rates on property income expected to rise from April 2027, many landlords are reassessing how they hold their assets.
Why Companies Are Becoming More Popular
No restriction on mortgage interest relief
Lower effective tax rates in many cases
No MTD compliance for landlords operating via companies
Example
A higher-rate taxpayer earning £60,000 in rental income could see:
Personal ownership tax: approximately £12,000
Company structure: approximately £1,900
But Watch the Traps
Capital gains tax may apply on transfer
Stamp duty can create additional costs
Restructuring may be expensive
Incorporation is not always the right move. Careful modelling is key.
Update: Small Company Filing Changes Delayed
Plans requiring small companies to file profit and loss statements publicly have been postponed. No new timeline has been confirmed, though the government has committed to providing at least 21 months’ notice before implementation.
Employment Law Changes Are Underway
Major reforms under the Employment Rights Act 2025 are now taking effect.
New “Day One” Rights (from April 2026)
Statutory Sick Pay (SSP)
No waiting period
Available to all employees
Paid at £123.25 per week or 80% of earnings
Paternity & Parental Leave
Available from day one of employment
Bereavement Leave
Up to 52 weeks if a partner dies within a child’s first year
Looking Ahead: 2027 Changes
Unfair dismissal protection
Applies after 6 months (previously 2 years)
Additional reforms include:
Rights for pregnancy loss
Guaranteed hours for zero-hours workers
Compensation for cancelled shifts
What Employers Should Do Now
Strengthen hiring processes
Improve performance management
Prepare for increased employment risk and cost
Corporation Tax Filing Changes
From April 2027, companies may only be able to amend tax returns online.
What This Means
Paper-based amendments are likely to be removed
Greater reliance on commercial software
Increased standardisation in reporting
A consultation is underway, and certain exemptions may apply (e.g. insolvency, religious restrictions, or system outages).
Payroll Update: State Pension Age Rising
The State Pension Age is increasing from 66 to 67 starting April 2026.
Key Impacts for Employers
Employee NICs stop at pension age
Employer NICs still apply
Payroll systems must reflect updated status
Small Employer Boost
Statutory payment compensation increased from 8.5% to 9%
Smaller employers can reclaim up to 109% of statutory payments
Late Tax Payments Are Getting More Expensive
HMRC interest rates have increased significantly.
Current Position
Interest rate: 7.75% (base rate + 4%)
Penalties:
5% after 30 days
Additional charges at 6 and 12 months
What You Can Do
Pay as early as possible
Consider a Time to Pay arrangement
Compare HMRC interest rates to alternative borrowing options
News Round-Up
A new Gov.UK One Login system is being introduced, with full migration expected by 2027
Company car tax rates are increasing, with EV rates rising to 4%
Petrol and diesel rates are also increasing
The top tax rate remains frozen until 2028
Final Thoughts
The direction of travel is clear: greater digitisation, increased compliance requirements, and more complexity across both personal and business tax.
Taking a proactive approach now can help you stay ahead of these changes, reduce risk, and identify planning opportunities.
If you would like to discuss how any of these updates apply to you, our team would be happy to help.