As the new tax year (April 6) begins, small business owners in the UK are gearing up for some big changes. While the past year has been challenging for many small businesses, the new tax year brings hope and opportunities for growth and success. In this article, we will discuss the key changes that small business owners need to know for the new tax year of 2026/27 and how they can make the most of it.
Firstly, the personal allowance has increased to £12,570 for individuals under 65 years old, which means that individuals can earn up to this amount without paying any income tax. This is great news for small business owners who are self-employed or have a limited company, as they can take advantage of this increase and reduce their tax liability. This increase in personal allowance also applies to the basic rate tax band, which has been raised to £50,270. This means that small business owners can earn up to this amount at the basic tax rate of 20%, before moving into the higher tax rate.
Moreover, the national insurance threshold has also been increased to £9,568, which means that small business owners will have to pay less national insurance contributions (NICs). This is a significant decrease from the previous year and will provide much-needed relief for small business owners.
Another important change is the increase in the corporation tax rate for small profits. From April 2026, the corporation tax rate for profits under £50,000 will be raised from 19% to 20%, while the main rate for profits over £50,000 will remain at 19%. This may seem like a small increase, but it can have a big impact on the profits of small businesses. However, the government has also introduced a new ‘small profits rate’, where businesses with profits under £20,000 will be taxed at a lower rate of 17%, providing some relief for small businesses.
In addition, the tax-free dividend allowance has also been reduced from £2,000 to £1,000. This may not seem like a significant change, but it will affect small business owners who pay themselves through dividends. However, this does not mean that dividends are no longer a tax-efficient way to pay oneself, as they are still taxed at a lower rate compared to other income.
Another change that will benefit small businesses is the increase in the Annual Investment Allowance (AIA). From April 2026, the AIA will be raised to £1 million, which means that small businesses can claim 100% tax relief on the first £1 million they spend on qualifying assets. This is an increase from the previous limit of £200,000 and will provide small businesses with more flexibility and opportunities for investment.
For small business owners who are planning to sell their business in the future, there is good news as well. The lifetime allowance for entrepreneurs’ relief has been increased from £1 million to £1.25 million. This means that small business owners can now claim up to £1.25 million of capital gains tax relief when they sell their business, reducing their tax liability significantly.
Apart from these changes, there are a few other important points that small business owners need to be aware of for the new tax year. The first one is Making Tax Digital (MTD), which has now been rolled out for all VAT-registered businesses with a taxable turnover above £85,000. This means that these businesses will now have to keep digital records and submit their VAT returns using MTD-compatible software. Although this may seem like a daunting task for small business owners, it will ultimately make tax filing and record-keeping more efficient and accurate.
Another important point to note is the changes in the rules for off-payroll workers (IR35). From April 2026, the responsibility for determining the employment status of contractors will shift from the contractor to the end client for medium and large businesses in the private sector. This means that small businesses will have to carefully review their contracts with self-employed workers and make sure they are compliant with IR35 rules to avoid any penalties.
In conclusion, the new tax year of 2026/27 brings about some significant changes and opportunities for small business owners in the UK. The increase in personal allowance, decrease in national insurance contributions, and increase in the AIA will provide much-needed relief to small businesses. However, it is important for small business owners to stay updated with these changes and plan their finances