News

Making Tax Digital for Income Tax became compulsory for the first group of sole traders and landlords from 6 April 2026.

HMRC is now taking the next step.

From September 2026, HMRC is starting to sign up people who it believes should already be using Making Tax Digital, but who have not registered themselves.

If you receive a notification from HMRC telling you that you have been signed up, it is important not to ignore it.

Who is affected?

For 2026/27, Making Tax Digital for Income Tax generally applies to sole traders and landlords whose qualifying income was more than £50,000 in 2024/25.

Qualifying income broadly means gross income from self-employment and property before deducting expenses. Other income, such as employment income, pensions and dividends, is not included when deciding whether the £50,000 threshold has been exceeded.

HMRC is using information it already holds to identify people who should be within the system.

That creates an important point. HMRC’s information may not reflect changes that have occurred since the relevant tax return was submitted.

If HMRC signs you up and you believe you should not be within Making Tax Digital, the position should therefore be checked rather than simply assuming HMRC must be correct.

Being signed up is only the beginning

Automatic registration does not remove the practical work involved in Making Tax Digital.

Those within the system need compatible software and must create and maintain digital records of their self-employment or property income and expenses.

They must also use compatible software to send quarterly updates to HMRC.

More than 436,000 sole traders and landlords had successfully submitted their first quarterly update by 12 August 2026, according to HMRC.

If you should have submitted an update but have not yet done so, action should be taken. HMRC has confirmed that late quarterly updates will not attract late-submission penalties during 2026/27, although the outstanding updates still need to be submitted.

More people join next April

Even if Making Tax Digital does not apply to you this year, it may do so shortly.

From 6 April 2027, the qualifying income threshold falls to £30,000. Whether you need to join will therefore depend on your qualifying self-employment and property income for 2025/26.

This means some sole traders and landlords who are outside MTD at present have only a few months to prepare.

Waiting until next April before thinking about accounting software, digital record keeping and quarterly reporting could make the transition unnecessarily difficult.

If you have received an MTD communication from HMRC, or think you could be brought within the rules from April 2027, speak to us. We can check when the rules apply to you and help you prepare for the change.

Businesses that register for VAT may be able to reclaim VAT paid on certain goods and services purchased before VAT registration. 

There are specific time limits for claiming pre-registration VAT. VAT on goods can generally be reclaimed where the goods are still held by the business or have been used to produce other goods that are still held by the business. The claim must relate to goods purchased within 4 years before the date of registration.

VAT on services can usually be reclaimed where the services were purchased within 6 months before registration. In both cases, the costs must relate to the business that is now registered for VAT and be attributable to its taxable activities.

Pre-registration VAT should be included on the business’s first VAT return. Businesses should ensure they hold valid VAT invoices and records to support the claim, including details of how any business and private use has been calculated.

There are special rules for certain situations, including partially exempt businesses, businesses with non-business income and significant capital assets covered by the Capital Goods Scheme. These rules can affect the amount of VAT that can be recovered.

It is therefore important for businesses to check the pre-registration rules carefully to ensure that all eligible VAT is identified and claimed correctly. 

When a sole trader or the partners in a partnership transfer a business to a limited company, Capital Gains Tax (CGT) may arise. This is because business assets are normally treated as being transferred at their market value, which may be considerably more than their original cost.

However, Incorporation Relief can allow some or all of the resulting gain to be deferred.

Broadly, the relief may be available where a business is transferred to a company as a going concern, together with all its assets, other than cash if desired, and the consideration received is wholly or partly in shares in the company.

Where the conditions are met, the gain eligible for relief is deducted from the CGT base cost of the shares received. This means that CGT is generally postponed until the shares are eventually sold or otherwise disposed of. If cash or other consideration is received alongside shares, the relief is normally restricted to the proportion of the transfer represented by shares. Part of the gain may therefore become immediately chargeable to CGT.

Incorporation Relief must now be claimed

An important change applies to businesses transferred to companies on or after 6 April 2026. Previously, Incorporation Relief applied automatically where the necessary conditions were satisfied. For transfers from 6 April 2026, the relief must instead be claimed. The claim will normally be made through the Self-Assessment tax return for the tax year in which the transfer takes place.

The claim must be made on or before the first anniversary of 31 January following the tax year in which the business transfer took place. For example, for a transfer during the 2026/27 tax year, the claim deadline will normally be 31 January 2029.

Failing to make a valid claim could therefore result in CGT becoming payable on gains arising when the business is transferred to the company.

Incorporation Relief is not necessarily the best option in every case. Before incorporating a business, it is worth considering the immediate CGT consequences, whether other reliefs may be available and the potential tax position when the company shares are eventually sold.

Professional advice should therefore be obtained before completing a business incorporation, particularly where the business has significant goodwill, property or other assets that have increased substantially in value.

Stamp Duty Land Tax (SDLT) is a tax that may apply when you buy land or property in England or Northern Ireland. It is important to check whether SDLT applies before completing a purchase, as the tax can represent a significant additional cost.

SDLT can apply when you buy a freehold property, a new or existing leasehold property, a property through a shared ownership scheme, or when land or property is transferred in exchange for payment. The amount of SDLT due depends on factors including the type of property, the purchase price and whether any reliefs or exemptions apply.

For residential property purchases in England and Northern Ireland, SDLT is charged on a banded basis, meaning different portions of the purchase price are taxed at different rates. The current rates for a standard residential property purchase are:

• 0% on the first £125,000
• 2% on the portion from £125,001 to £250,000
• 5% on the portion from £250,001 to £925,000
• 10% on the portion from £925,001 to £1.5 million
• 12% on the portion above £1.5 million

Different rules apply for certain buyers. First-time buyers may qualify for relief, while those purchasing an additional residential property will usually pay an additional 5% on top of the standard rates. Non-UK residents may also be subject to different rates.

SDLT only applies to property and land transactions in England and Northern Ireland. Scotland has a separate tax called Land and Buildings Transaction Tax (LBTT), while Wales has Land Transaction Tax (LTT). 

An SDLT return normally needs to be submitted to HMRC and any tax due paid within 14 days of a property purchase completion. Your solicitor or conveyancer will usually deal with this as part of the purchase process.

1 September 2026 – Due date for corporation tax due for the year ended 30 November 2025.

19 September 2026 – PAYE and NIC deductions due for month ended 5 September 2026. (If you pay your tax electronically the due date is 22 September 2026)

19 September 2026 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2026. 

19 September 2026 – CIS tax deducted for the month ended 5 September 2026 is payable by today.

1 October 2026 – Due date for Corporation Tax due for the year ended 31 December 2025.

19 October 2026 – PAYE and NIC deductions due for month ended 5 October 2026. (If you pay your tax electronically the due date is 22 October 2026)

19 October 2026 – Filing deadline for the CIS monthly return for the month ended 5 October 2026. 

19 October 2026 – CIS tax deducted for the month ended 5 October 2026 is payable by today.

31 October 2026 – Latest date you can file a paper version of your 2025-26 self-assessment tax return.

A penalty may now be on its way…

Some companies that filed their Corporation Tax return late may shortly receive an unwelcome letter from HMRC, even though the filing deadline passed some time ago.

HMRC temporarily stopped issuing automatic Corporation Tax late-filing penalty notices while it updated its computer systems. Those changes have now been completed and HMRC has confirmed that automatic penalty notices are being issued again.

This means companies that filed late during the temporary pause could receive a penalty notice later than they might have expected.

Penalties have doubled

There is another reason to take Corporation Tax filing deadlines seriously.

The fixed penalties increased for Company Tax Returns with a filing date on or after 1 April 2026.

A return filed up to three months late can now result in a £200 penalty, compared with £100 previously. Once the return is more than three months late, a further £200 is charged, taking the fixed penalties to £400.

The consequences can become considerably more expensive if a return remains outstanding. After six months, HMRC can estimate the Corporation Tax due and impose an additional penalty of 10% of the unpaid tax. A further 10% penalty can arise after 12 months.

There are also much higher fixed penalties for companies that repeatedly file late.

Importantly, a company can receive a late-filing penalty even if it has no Corporation Tax to pay.

A delayed notice does not cancel the penalty

HMRC has specifically warned companies not to assume that they have escaped a penalty simply because they did not receive one shortly after filing late.

Companies that filed after their deadline remain liable. HMRC says some penalty notices may arrive later than usual while it works through the delayed cases.

If you receive one, check the accounting period, filing deadline and date on which the return was actually submitted.

There may be circumstances in which a penalty can be appealed, for example where the company had a reasonable excuse for failing to file on time. However, HMRC requires the Company Tax Return to be filed before an appeal against the late-filing penalty can be made.

Do not confuse filing with paying

It is also worth remembering that filing a Company Tax Return and paying Corporation Tax are separate obligations.

For a typical established company, Corporation Tax is normally payable nine months and one day after the end of its accounting period, while the Company Tax Return is normally due 12 months after the end of the accounting period.

Paying the Corporation Tax on time does not therefore prevent a penalty if the return itself is filed late.

If your company has an outstanding Company Tax Return, or you receive an unexpected penalty notice from HMRC, speak to us as soon as possible so that we can check the position and advise you on the appropriate action.

Running a limited company gives business owners several ways of taking money from their business.

Salary and dividends are the most familiar, but they are not the only possibilities. The tax consequences can also be quite different, which means simply transferring money from the company bank account when you need it is rarely the best approach.

Taking a salary

A director can receive a salary through the company’s payroll.

Provided the salary is incurred wholly and exclusively for the purposes of the company’s trade, it will generally be deductible when calculating taxable profits. Depending upon the amount paid, however, Income Tax and National Insurance contributions may arise.

The appropriate salary level will depend upon individual circumstances, so there is no single figure that is right for every company director.

Paying dividends

Shareholders may also receive dividends.

Unlike salary, dividends are not deducted when calculating the company’s Corporation Tax liability. They are distributions of profits that have already been earned by the company.

Importantly, a company must have sufficient profits available for distribution before paying a dividend.

The necessary company procedures should also be followed and appropriate records maintained. Regularly transferring money from the company bank account and subsequently describing those payments as dividends can cause problems if insufficient distributable profits were available.

The shareholder may also have Income Tax to pay on dividends received.

What are the other options?

Depending upon the circumstances, there may be other ways of extracting value from the company.

For example, the company might make employer contributions to a director’s pension. These can be particularly attractive where the director does not require all the available funds for immediate personal expenditure, although pension contribution rules and allowances need to be considered.

The company can also reimburse legitimate business expenses paid personally by a director.

If a director previously lent money to the company, repayment of that loan would normally be treated differently from salary or dividends.

Watch the director’s loan account

Problems can arise when directors withdraw money without deciding what those payments represent.

If the amounts cannot properly be treated as salary, dividends, expenses or repayment of money previously introduced, they may create an overdrawn director’s loan account.

This can have tax consequences for both the company and director, particularly if the balance remains outstanding.

Watch out, changes underway

The rules governing how shareholders take money and other value from companies may also be changing. The government is currently consulting on modernising the taxation of company distributions, an area where much of the legislation has remained substantially unchanged since 1965. The review is considering, among other things, the distinction between income and capital payments to shareholders, reductions and repayments of share capital, company purchases of own shares, demergers, the interaction between distributions and loans to shareholders, and the Transactions in Securities anti-avoidance rules. It also considers whether the tax treatment of distributions from non-UK companies should be brought more closely into line with that applying to UK companies. The consultation is particularly relevant to owner-managed and other close companies and closes on 14 September 2026. No final changes have yet been decided, but company owners considering significant withdrawals, share reorganisations or capital transactions should take advice before acting.

Review your strategy

The most appropriate way to take money from a company depends upon several factors, including profits, other personal income, cash requirements, pension plans and the circumstances of other shareholders.

It is therefore worth reviewing the position rather than automatically repeating whatever was done last year.

It is one of the more frustrating situations for a business owner.

Sales are increasing, everyone seems busy and there is plenty of work coming through the door. Yet the bank balance does not seem to improve, and, in some cases, cash becomes even tighter as the business grows.

The problem is that increasing sales does not necessarily mean increasing profits or cash.

Start with your profit margin

Suppose a business sells something for £100 that costs £60 to provide. The £40 difference contributes towards overheads and ultimately profit.

If the cost increases to £70 but the selling price remains £100, the business is still generating exactly the same turnover from each sale, but its margin has fallen from £40 to £30.

The business now needs considerably more sales simply to produce the same level of profit.

This can easily happen when wages, materials, subcontractor costs, energy and other expenses increase gradually but selling prices remain unchanged.

Are all your customers profitable?

Another common problem is assuming that all sales are equally valuable.

One customer may be straightforward to service and pay promptly. Another paying exactly the same price might require additional meetings, telephone calls, revisions and administration, and then take two months to pay.

The turnover figures may look identical, but the profitability of the two customers could be quite different.

The same principle applies to individual products and services. Knowing which parts of the business produce the best margins can help management decide where future effort should be directed.

Growth can consume cash

Rapid growth can also create its own cash flow problems.

A growing business may need additional employees, equipment or stock before it receives payment from customers. VAT, PAYE and other liabilities may also increase.

The result can be the strange situation where the accounts show a profitable and growing business while its bank account remains under constant pressure.

This is why profit and cash need to be monitored separately.

When did you last review your prices?

Businesses sometimes increase prices only when rising costs leave them with little alternative.

Regular small increases may be easier to manage than waiting several years and then needing a substantial increase simply to restore margins.

It is also worth considering whether every customer should necessarily receive the same percentage increase.

Look beyond turnover

Turnover is important, but it tells only part of the story.

Regular management information can show whether gross margins are improving or deteriorating, which costs are increasing and whether additional sales are actually producing additional profit.

If your business is busier than ever but the financial rewards do not seem to reflect the additional work, speak to your accountant.

A review of your margins, costs, pricing and cash flow may reveal where the money is going and, more importantly, what you can do about it.

Imagine that tomorrow morning you were suddenly unable to work.

Not permanently, but for three months.

Could your business continue operating normally without you?

For many owner-managed businesses, the answer is less certain than the owner might like to believe. The business may employ capable people, have established customers and generate healthy profits, but important knowledge, authority and commercial relationships can still be concentrated in one person’s hands.

How dependent is the business on you?

Consider what would happen during your first week away.

Who could access the bank accounts and authorise payments? Who knows the important passwords? Could somebody deal confidently with your largest customers? Who would make decisions about employees, suppliers, pricing and unexpected problems?

Perhaps most importantly, how much essential information exists only in your head?

These are not simply questions about preparing for illness or an accident. The answers tell you something important about the underlying resilience of your business.

Start documenting what you do

One of the simplest ways to reduce owner dependence is to document important systems and procedures.

You do not necessarily need a large operations manual covering every aspect of the business. Start with the processes that would cause the greatest difficulty if you were unexpectedly unavailable.

Record where important information is held, who has authority to make decisions, what needs to happen each week or month and who should be contacted if something goes wrong.

You can then consider whether responsibility for some activities could gradually be delegated.

Consider the financial risks

Financial resilience matters too.

Would the business have sufficient cash reserves to cope with disruption? Are appropriate insurance arrangements in place? Are banking authorities adequate? Does somebody other than you understand the company’s financial position?

Businesses with several shareholders should also consider what would happen if one shareholder died or became unable to participate in the business.

Resolving these questions in advance is considerably easier than trying to deal with them during a crisis.

A more independent business may be worth more

There is another reason for reducing the business’s dependence on you.

One day, you may want to sell it.

A purchaser is not simply buying the profits generated last year. They are buying the expectation that the business will continue generating profits after the existing owner has left.

A profitable company that depends heavily upon one individual can therefore be less attractive than a similar business with documented systems, delegated management responsibilities, established procedures and customer relationships spread throughout the organisation.

Reducing owner dependence can consequently be part of building the long-term value of your business.

Put your business to the three-month test

Ask yourself a simple question: what would happen if I disappeared from the business for three months?

Make a list of everything that would stop, become difficult or require your personal involvement. That list provides a useful starting point for improving business resilience.

If you would like to assess how dependent your business currently is on you, speak to us. We can help identify the principal risks, establish priorities and develop practical steps towards creating a stronger, more independent and potentially more valuable business.

Companies House identity verification is now part of the compliance responsibilities of UK companies. If you are a company director or person with significant control, it is important to understand when you need to verify and what happens afterwards.

Mandatory identity verification was introduced from 18 November 2025. However, this did not mean that every existing director had to verify immediately. Existing directors have been brought into the system during a transitional period, with their requirements generally linked to the company’s confirmation statement.

Who needs to verify?

The identity verification rules apply to various people involved with UK companies, including directors and people with significant control (PSCs).

New directors appointed since the new regime took effect are subject to identity verification requirements as part of becoming a director. Existing directors are being brought into the system according to the transitional arrangements.

Consequently, two directors of different companies may have different deadlines, even though the underlying identity verification requirements are the same.

Do not assume that because somebody you know has already completed the process, or has not yet been required to do so, the same timetable applies to you.

What happens when you verify?

Once you have successfully verified your identity, Companies House provides you with a personal code.

The important point is that the code belongs to you rather than to a particular company. If you are a director of several companies, you will normally use the same personal code for each company.

Existing directors will generally need to provide their personal code as part of the confirmation statement process. PSCs also have requirements to provide their personal code to Companies House.

Keep the code somewhere secure and accessible because you may need it again.

Why has the system changed?

The identity verification regime forms part of a much wider reform of Companies House.

Historically, relatively limited checks were carried out on information submitted to the register. Companies House now has greater powers intended to improve the reliability of information held on the register and help prevent UK companies being used for unlawful purposes.

Identity verification is an important part of those reforms because it should make it more difficult for somebody to create or control companies using false identities.

Do not leave it until the deadline

There is a practical reason for completing verification in good time.

If your confirmation statement deadline is approaching and a director has not dealt with their identity verification requirements, an otherwise straightforward company secretarial task could become more complicated.

Companies House also has enforcement powers where people fail to comply with identity verification requirements.

Directors should therefore establish when they need to act rather than simply waiting until a filing deadline is imminent.

Check your position now

If you are uncertain whether you have completed the necessary identity verification, cannot locate your personal code or are unsure when you need to provide it to Companies House, speak to us.

We can help you establish what action is required and ensure that your company’s filing arrangements take account of the new identity verification regime.