Company tax changes from April: What founders need to know
April marks the start of a new tax year and that means changes that affect how businesses report, plan for and pay tax.
07 April 2026
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April marks the start of a new tax year and that means changes that affect how businesses report, plan for and pay tax. Some of these reforms have been phased in over the past few years. Others are at an earlier stage and will continue to develop over coming years, but all of them could have an impact on you and your business.
If you are a business founder, especially in the early-growth stage, here’s what’s changing, how it affects you and what you should be doing now.
1. What’s changing in April?
Making Tax Digital for Income Tax
This has been described as the biggest shake up of the self-assessment scheme for decades. HM Revenue & Customs (HMRC) is continuing its shift toward a fully digital tax system under Making Tax Digital (MTD). From April 2026, self-employed individuals (sole traders) and landlords earning over £50,000 must comply with MTD for Income Tax. From April 2027, this will extend further down to anyone in these categories earning over £30,000. Instead of submitting one annual self-assessment tax return, those affected will need to:
- Keep digital records
- Submit quarterly updates
- File an end-of-period statement
- Submit a final annual declaration
This does not yet apply to corporation tax and doesn’t concern limited companies or directors who take income through a mix of salary and dividends. But further MTD expansion is expected in future years and including these elements later has not been ruled out.
R&D Tax Relief Reform
The research and development (R&D) tax relief system has been restructured. Under these schemes, businesses claim tax relief on money invested in R&D. Previous schemes for small and medium-sized enterprises (SMEs) and the Research and Development Expenditure Credit (RDEC) have been merged into a single, new framework, with enhanced relief available for “R&D intensive” businesses. But all claims now require more detailed technical and financial disclosure, an additional information form and named officer accountability. While these schemes will now attract greater scrutiny from HMRC, they will allow for full expensing for capital investment.
Full expensing allows limited companies to deduct 100% of qualifying plant and machinery investment from taxable profits in the year of purchase, rather than spreading the deduction over time. For asset-heavy or scaling businesses, this is a significant, positive change.
Dividend allowance reduction
The tax-free dividend allowance will remain at £500. Anything above that is taxable at the relevant dividend tax rate and rates of dividend tax are going up by 2% in April. The basic rate increases from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. For founders who pay themselves through a mix of salary and dividends, this increase may shift the balance of personal tax planning.
Basis period reform for sole traders
If you operate as a sole trader and previously used a non-tax-year accounting date, profits are now taxed strictly on a tax-year basis (6 April to 5 April). The transition year has passed, and the system is now aligned going forward.
2. How will these changes affect me as a founder?
The impact of the changes will depend on your structure and growth stage.
If you run a limited company
- Investment timing now has a bigger tax impact because of full expensing.
- Dividend planning is more sensitive due to the reduced allowance.
- R&D claims require stronger documentation and greater oversight.
In short, tax planning becomes more strategic. Small changes in timing or structure can materially affect retained profits and runway.
If you’re a sole trader
- You’ll likely fall into Making Tax Digital for Income Tax from 2026 or 2027.
- You’ll move from annual to quarterly reporting.
- Cash flow visibility becomes more important.
- Admin workload increases unless systems are automated.
If you’re both a company director and self-employed elsewhere
Many founders are employed elsewhere and run their business as a side venture or have property income or income from other sources. MTD for Income Tax may apply to you as a founder personally, even if your company is unaffected by it.
From the overall direction of these developments, it looks as if HMRC expects to see more frequent reporting, underpinned by digital record-keeping and more data cross-checking. As reporting and systems become more automated, there is likely to be less tolerance for error. With the whole UK tax system moving closer to being focused on real-time reporting, there will be much less flexibility for last-minute adjustments.
3. What do I need to do about it?
The most important thing is to not panic. But you should discuss these developments with your accountant if you have one. Even if you don’t you need to prepare for these changes.
a. Review your structure
Ask yourself whether, under the new rules, your current legal setup is still the right one. You may have set up as a limited company or a sole trader for good reasons, but it is worth taking time now to review these arrangements. Are they still the most appropriate for the new regulations?
As profits grow, a limited company may offer advantages. But for some early-stage founders, simplicity matters more than tax optimisation. It is worth revisiting the decision every year.
b. Upgrade your accounting systems
If you are plugging numbers into a trusty old spreadsheet and keeping lots of manual records, it is probably time to think about upgrading to a digital system. If you are not already using cloud-based, MTD-compatible software, now is the time to take the plunge and do so. HMRC has a good list of compatible software suppliers [https://www.gov.uk/government/collections/commercial-software-developers]. Quarterly digital reporting simply won’t work efficiently if you stick to using spreadsheets. The use of more digital systems can enhance lots of other aspects of your business, including:
- Cash flow forecasting
- Investor reporting
- Funding readiness
- Grant applications
c. Forecast profits early
Don’t wait until year end to discover you’ve crossed a Corporation Tax threshold and entered a higher band. Quarterly forecasting will allow you to:
- Plan capital investment
- Time expenditure
- Adjust dividend strategy
- Make pension contributions efficiently
d. Tighten up any R&D documentation
If you claim R&D relief then you will now need to be much more focused on the details. The new system requires a more robust, evidence-based approach and you will need to keep a thorough set of technical project notes. You will need to measure and track the time spent on R&D by any qualifying staff carefully. And across all aspects of a claim you will need to retain plenty of supporting evidence. When submitting a claim now you will have to expect more questions from HMRC. Well-documented claims can help reduce stress later in the process.
e. Rethink how you pay yourself
With a much lower dividend allowance, your salary-dividend balance may need adjusting. This is particularly important if you’re approaching higher personal tax bands or are planning to raise investment. It is also important if you need to maintain predictable personal income.
Time for a mindset shift on tax
Founders need to recognise that the tax landscape is changing. While it isn’t necessarily becoming harsher, it is becoming more structured and more digital. That’s not necessarily a bad thing. Better visibility leads to better decisions. The key shift is one of mindset. Treat tax as an ongoing operational function, not a once-a-year admin task. If you build the right systems and habits now, these changes become manageable. And that gives you more headspace to focus on what matters most: growing your business.
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