Navigating the New Tax Year 2026: A Comprehensive Guide for Freelancers and Small Businesses

A new year, another wave of rule changes

If you run a small business, you’ll know the feeling: new tax rates, new systems, new forms.
The 2026/27 tax year brings a mix of change and confusion: Making Tax Digital, Companies House ID checks, VAT tweaks, and yet another round of payroll and benefit updates.

Here’s your one-stop guide to what actually matters, no jargon, just practical steps to stay compliant and organised.

1️⃣ VAT: What’s Changed and What’s Worth Knowing

New thresholds

• Registration threshold: £90,000

• Deregistration threshold: £88,000
  These apply to your rolling 12-month turnover, not the calendar year.
  If you expect to exceed £90,000 in the next 30 days, you must register within 30 days of that forecast.

Flat Rate Scheme - still worth it?

The Flat Rate Scheme (FRS) lets small businesses simplify VAT reporting, but it’s not always cheaper anymore.

• You pay a fixed percentage (between 4%–16.5%) of your VAT-inclusive turnover to HMRC.

• You keep the difference between what you charge and pay.

Watch out:
If your expenses are higher than before (fuel, tools, subcontractors), you might be better off on standard VAT.
We compare both options annually and can help crunch the numbers for you.

Self-Serve Time to Pay (TTP)

HMRC’s Self-Serve portal now allows you to set up payment plans online for VAT, PAYE, or Self-Assessment tax.
To qualify:

• You must owe less than £20,000.

• The debt must be under 12 months old.

• You’ve filed all returns on time.

Use your Business Tax Account to check eligibility - it’s much faster than calling HMRC.

VAT and CIS (Construction Industry Scheme)

Builders and subcontractors are still getting caught out by the CIS VAT reverse charge, especially when mixing standard and domestic jobs.
Remember:

• The reverse charge applies to most B2B construction work where the customer is VAT-registered.

• You don’t charge VAT - instead, the contractor accounts for it on their VAT return.

• For private/domestic customers, normal VAT rules apply.

It’s messy when your business does both; always check each invoice and client’s VAT status.

VAT on carbon credits and sustainability projects

If you sell or trade carbon credits, offsets, or renewable-energy certificates, VAT treatment depends on what’s being sold:

• UK-issued carbon credits: generally standard-rated (20%).

• Overseas credits: may fall outside UK VAT scope.
  Given the rise in small firms selling or gifting credits for ESG reasons, it’s worth confirming with your accountant how each transaction is recorded.

2️⃣ Making Tax Digital (MTD)

Phased entry

You’ll need to:

1. Keep digital records of income and expenses.

2. Submit quarterly updates via HMRC-approved software.

3. File an End-of-Period Statement and Final Declaration each year.

💡 Tip: Start using digital bookkeeping now, even if you’re below the threshold - it’ll make the transition painless.

3️⃣ Companies House ID Verification

From 18 November 2025, directors and people with significant control (PSCs) must verify their identity through Companies House One Login or via an authorised agent (your accountant).
Existing directors have until their next confirmation statement after that date to verify their information.
No verification = no filings, and eventually you risk being struck off.

4️⃣ Payroll and Benefits

The new mandatory payrolling of benefits in kind starts on 6th April 2027.
Until then, you can voluntarily payroll perks like health insurance or car benefits — a good way to iron out any kinks before the deadline.

5️⃣ National Insurance and Director Planning (2025/26)

• Employees’ NIC main rate: 8%

• Self-employed Class 4: 6%

• Class 2: abolished (optional for pension credit gaps)

We’ll publish a fresh “Director Salary 2026” guide in spring, but for now, review your mix of salary and dividends before April.

6️⃣ Sick Pay, Holiday Pay & Employment Contracts

Statutory Sick Pay (SSP) remains £116.75 per week for up to 28 weeks, payable from day one (after April 2025).
Employers can’t reclaim SSP from HMRC anymore, so budget for absences and check contracts reflect this.

7️⃣ Trivial Benefits & Staff Treats

The £50 rule still stands:
Small gifts, hampers or event tickets can be tax-free if they’re:

• Not cash or cash-vouchers

• Not linked to performance or work done

• Not routine

Think coffee cards, local theatre tickets, or advent calendars - small gestures, big morale boost.

8️⃣ Compliance Checklist for 2026

✅ Review turnover and VAT registration.
✅ Check if Flat Rate Scheme still makes sense.
✅ Move to MTD-compatible bookkeeping.
✅ Register early for Companies House ID.
✅ Update employment contracts for SSP and holiday.
✅ Test Self-Serve Time to Pay.
✅ Review CIS VAT setup.
✅ Keep records for any carbon-credit transactions.

Our view

The rules keep coming - MTD, ID checks, payrolling, VAT tweaks - but they’re manageable with the right tools.
If you’re using FreeAgent or Xero, most of this can be automated.

We’re helping clients set up MTD-ready software, payroll benefit testing, and VAT compliance for CIS and carbon projects.