With the new tax year fast approaching, it is important to be aware of tax changes for small business owners from April 2026. Two significant tax changes will impact directors of limited companies, self-employed individuals (sole traders) and landlords. The tax rate on dividend income is increasing by 2%, which impacts company directors. Making Tax Digital (MTD) comes into effect for self-employed individuals and landlords with income above £50,000.
Increase in dividend tax from April 2026
From April 2026, limited company directors who pay themselves with a mix of a salary and dividends will pay more tax. Dividend tax is increasing by 2% on dividends falling within the basic and higher rate tax bands. The basic rate dividend tax rate is increasing to 10.75%, up from 8.75%, while the higher rate is increasing to 35.75%, up from 33.75%. The additional dividend tax band rate remains at 39.35%.
A director paying themselves £50,270 from their limited company, splitting this between a salary of £12,570 and dividends of £37,700, pays an extra £744 a year in dividend tax from April 2026. The first £500 of dividends is covered by the annual £500 dividend allowance and is tax-free. The remaining £37,200 of dividends are taxed at 10.75%, equating to tax of £3,999 (compared with £3,255 in 2025/26).
MTD – making tax digital for the self-employed and landlords
Self-employed individuals and landlords with annual income over £50,000 must register with HMRC for MTD. From April 2026 they will need to submit quarterly income and expense summaries to HMRC. If you are self-employed with turnover over £50,000, or a landlord with property income over £50,000, you will need to keep electronic records of your income and expenses. You can find details of MTD compliant accounting software HMRC’s website. MTD compliant software will allow you to track your income and expenses. Each quarter, you will submit a summary of your income and expenses to HMRC.
MTD is being rolled out over three years, applying to self-employed individuals and landlords as follows:
- 6 April 2026 – if your turnover or property income is over £50,000
- 6 April 2027 – if your turnover or property income is over £30,000
- 6 April 2028 – if your turnover or property income is over £20,000
Benefits of MTD submissions
Quarterly submissions may improve your business administration, helping you track your tax liability and improve your cash flow management. While there may be additional costs, many small business owners may find the administrative benefits outweigh them.
Missing submission deadlines
If you fall under MTD, it’s important to register and submit your business information by the quarterly deadlines. HMRC will issue you with penalty points for each late submission, and a fine once you reach a certain number of points.
Other MTD resources
HMRC have put together a comprehensive resource about MTD on their website, which includes details of MTD compliant software:
Making Tax Digital for Income Tax – HMRC guide
Making Tax Digital software – what you’ll need for Income Tax
Other resources for limited company directors
Use our free limited company director tax calculator to estimate your tax liability from April 2026:
Tax Calculator for Company Directors from April 2026
In our shop, you will find our Excel spreadsheet for company directors which tracks and estimates the tax liability on a monthly and annual basis.
