Top UK Tax Changes SMEs Must Prepare for in 2025/26

The UK tax landscape is undergoing another significant shift in the 2025/26 financial year. For small and medium-sized businesses, understanding these updates isn’t just about compliance — it’s about strategic planning, cash-flow management, and staying competitive in a fast-changing economy.

For many SMEs, working with outsourced accounting partners like Outbooks UK has become a practical way to handle the increasing complexity around tax rules, digital submissions, and compliance checks.

From employer National Insurance adjustments to updates in Making Tax Digital (MTD), the new tax thresholds will affect payroll, expenses, and the overall cost of doing business. Here’s a clear breakdown of the most important changes SMEs need to prepare for.

1. Employer National Insurance: Cost Pressures Rise

Employer National Insurance Contributions (NICs) remain one of the biggest payroll expenses for businesses. In 2025/26, SMEs should expect:

• Further tightening of thresholds

• Higher NIC liabilities for certain pay bands

• Increased payroll compliance checks by HMRC

With payroll rules evolving, many SMEs rely on outsourced payroll teams such as Outbooks UK to manage calculations, forecasts, and compliance.

2. Corporation Tax Adjustments for SMEs

Corporation tax stays within the current tiered structure, but the government is introducing:

• Stricter relief eligibility checks

• More detailed reporting for capital deductions

• Clearer definitions of allowable vs. non-allowable business expenses

SMEs benefiting from marginal relief must ensure accurate calculations, something outsourced finance teams like Outbooks UK can help streamline.

3. Full Expensing Continues – A Big Win for SMEs

The full expensing scheme allows 100% deduction of qualifying plant and machinery costs. Key benefits for SMEs include:

• Expansion of qualifying assets

• Faster approval for leased equipment

• Enhanced reporting requirements

This relief benefits construction firms, manufacturers, and digital-first companies — many of whom depend on Outbooks UK for capital allowance assessments and record-keeping support.

4. R&D Tax Relief – More Scrutiny, But Higher Potential Gains

Innovative SMEs can still access R&D tax credits, but HMRC now requires:

• Stronger technical documentation

• Clear justification for eligible costs

• More transparent reporting

Businesses submitting R&D claims often need compliance-ready documentation — something outsourced specialists like Outbooks UK assist with regularly.

5. Making Tax Digital (MTD) for Income Tax Expands

MTD for Income Tax Self Assessment (ITSA) applies to more groups in 2025/26, including:

• Landlords earning over £30,000

• Self-employed individuals

• Small partnerships

Businesses must keep digital records and submit quarterly updates. Migrating to MTD-compliant bookkeeping is easier for SMEs working with digital-first outsourcing firms like Outbooks UK, which ensure compatibility and timely submissions.

6. VAT Threshold Stays High — But Reviews Are Coming

While the VAT threshold remains high, reviews are underway. This year SMEs may see:

• Simplified VAT processes

• Broader partial exemption support

• Stricter digital VAT compliance

Many SMEs close to the threshold use outsourced VAT support from Outbooks UK to avoid unexpected registration triggers.

7. Business Rates Reform: More Relief, More Conditions

Updates to business rates include:

• Expanded small business rates relief

• Revised eligibility criteria

• Digital-first review processes

With local councils tightening documentation checks, error-free record keeping becomes essential — another area where outsourcing partners like Outbooks UK add value.

8. Dividend Allowance Cuts Affect SME Directors

SME directors withdrawing dividends will experience:

• A reduced dividend allowance

• Higher tax liability

• The need for strategic remuneration planning

Accountants and outsourced finance teams like Outbooks UK help directors build a more tax-efficient salary-dividend approach.