UK Tax Changes from April 2026; Key Updates and Compliance Steps for Businesses & Individuals

UK Tax Changes 2026

April 2026 marks a significant modernisation of UK tax administration in a generation. Sole traders, landlords, businesses, individuals and investors alike will face new digital compliance obligations. Frozen tax thresholds will also affect many more taxpayers in the UK tax changes for 2026.

Early preparation is essential to minimise risk, avoid penalties, and ensure a seamless transition. Implementing the recommended compliance steps will significantly reduce the likelihood of errors and associated challenges.

1. Making Tax Digital (MTD) for Income Tax

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must:

• Use HMRC-recognised software for record-keeping.

• Submit quarterly income and expense summaries.

• Continue submitting an end-of-year declaration via software. 

  
  

Implementation timeline:

• 6 April 2026: Digital record-keeping becomes mandatory.

• 7 August 2026: First quarterly update due.

• 31 January 2027: Final declaration due via software.

2. Freeze on Personal Allowance and NIC thresholds

   
   

From 6 April 2026 and continuing through 2027–28, the following will be frozen at current levels:

• Personal Income Tax Allowance: £12,570

• Basic-rate band limit: £37,700, keeping higher-rate threshold at £50,270

• National Insurance lower and upper thresholds aligned to Income Tax bands.

This freeze will contribute to “fiscal drag,” where inflation-driven income growth may push earners into higher tax bands despite unchanged rates. 

3. Dividend Tax Increases

   
   

Effective from 6 April 2026, dividend tax rates rise by 2 percentage points:

• Basic rate: 8.75% → 10.75%

• Higher rate: 33.75% → 35.75%

• Additional rate remains at 39.35%

• Annual dividend allowance remains at £500. 

4. Revised Expensive Car Supplement for EVs

   
   

From 1 April 2026, the Vehicle Excise Duty (VED) supplement for electric cars will only apply to vehicles priced over £50,000, replacing the existing £40,000 threshold: exempting many middle-priced EVs. 

5. Construction Industry Scheme (CIS) Reforms

   
   

From 6 April 2026, HMRC’s CIS will include:

• A reinstated requirement for nil returns to address reporting lapses.

• Formalisation of exemptions for public bodies under “GPS” rules.

This aims to improve compliance and reduce administrative errors.

6. Digital Obligations: Income Tax Regulations 2026

   
   

Under newly published draft regulations:

• All digital obligations including record-keeping, quarterly updates, and digital reporting will come into force from 1 April 2026.

  
  

These set the legal framework underpinning MTD requirements.

---

Summary Overview

Measure	Effective Date	Summary of Impact
MTD for Income Tax	6 April 2026	Digital record-keeping & quarterly submissions required
Personal Allowance & NIC Freeze	6 April 2026	No thresholds adjusted until at least April 2028
Dividend Tax Increase	6 April 2026	Basic: +2%, Higher: +2%, Additional: unchanged, allowance frozen
EV Tax Exemption Threshold	1 April 2026	Only EVs > £50k subject to VED supplement
CIS Administrative Changes	6 April 2026	Nil returns reinstated; public body exemptions formalised
2026 Income Tax Digital Regulations	1 April 2026	Legal codification of MTD framework
Fuel Duty Reversion & Other Updates	Mid-late 2026	Reversal of reliefs, broader tax reforms upcoming

---

Practical Steps for Compliance

1. Prepare for Making Tax Digital (MTD)

• Assess your income: If you earn over £50,000 from self-employment or property, you’ll need to comply.

• Choose HMRC-approved software: Research and implement compatible accounting software early.

• Digitise your records: Transition from paper or spreadsheets to digital record-keeping.

• Plan for quarterly submissions: Set reminders for April, July, October, and January updates.

2. Budget for Fiscal Drag

• Review your tax position: With frozen allowances, more income may fall into higher tax bands.

• Adjust salary and dividend strategies: Consider timing and amounts to minimise exposure.

• Update payroll systems: Ensure NIC and PAYE thresholds remain aligned with HMRC guidance.

3. Dividend Tax Planning

• Factor in higher rates: From April 2026, dividend tax increases by 2 percentage points.

• Use allowances wisely: The £500 dividend allowance remains, so optimise distributions.

• Consider alternative remuneration: Explore salary vs. dividends for tax efficiency.

4. Vehicle Tax Changes

• Check EV purchase plans: Only electric cars over £50,000 will attract the VED supplement.

• Update fleet budgets: Businesses should review vehicle acquisition strategies accordingly.

5. Construction Industry Scheme (CIS)

• Prepare for nil returns: Ensure systems can handle reinstated reporting requirements.

• Verify exemptions: Public bodies should confirm compliance under new GPS rules.

6. Stay Informed

• Monitor HMRC updates: Subscribe to official newsletters and alerts.

• Engage a tax advisor: Professional guidance can help navigate complex changes.