Tax changes taking effect from April 2026

Last Updated on April 19, 2026

Personal income tax changes from April 2026

Several personal income tax changes take effect from April 2026, with some offering financial relief and others increasing the burden on taxpayers. Dividend tax rates are increasing by 2%, while Making Tax Digital (MTD) comes into effect from April 2026. MTD impacts self-employed individuals and landlords with income over £50,000. Pension and maternity leave payments are increasing, together with the minimum wage. Benefit-in-kind on electric vehicles is going up while tax relief for home-working is no longer available. Here’s a summary of what’s changing:

Basic rate dividend tax is increasing by 2% to 10.75% (up from 8.75%) while the higher rate band is going up from 33.75% to 35.75%. The additional rate dividend tax remains unchanged at 39.35%. The annual tax-free dividend allowance is unchanged at £500.
Making Tax Digital (MTD) comes into effect for self-employed individuals and landlords with income over £50,000. From 6th April 2026, they must maintain electronic records using MTD compliant software and submit quarterly income and expense summaries electronically to HMRC.
The Basic Rate State pension is increasing to £184.90 a week (£8.45 a week more) while the New State Pension is increasing by £11.05 a week to £241.30.
The minimum wage for individuals 21 and over increases to £12.71 per hour from April 2026.
The benefit-in-kind (BIK) on electric company cars is increasing from 3% to 4%. This means PAYE is due on 4% of the car list price plus any optional extras.
HMRC is removing tax relief for non-reimbursed homeworking expenses for employees required to work from home. This means you can no longer claim relief via your self assessment tax return. Your employer can continue to reimburse you for your homeworking expenses of £6 a week.
Statutory maternity pay is increasing from £187.18 a week to £194.32.

The impact of dividend tax increases on limited company directors

If you are a business owner and a limited company director, and part of your income consists of dividends, your annual tax liability will increase from April 2026. From 6th April 2026, both the basic and higher rate dividend tax rates are increasing by 2%. The tax rate on dividends falling within the basic rate tax band is increasing from 8.75% to 10.75%, while tax on dividends falling within the higher rate tax band will be taxed at 35.75%, up from 33.75%.

A company director taking a combined salary and dividends of £50,270 annually will now pay an extra £744 in tax. The most tax-efficient way for directors to take this amount from their company is £12,570 in salary and £37,700 in dividends.

The tax-free personal allowance of £12,570 means no tax is payable on the salary. The personal allowance lets individuals earn up to £12,570 annually tax-free. The first £500 of dividends is covered by the annual dividend allowance and is tax-free. At the 2026/27 basic dividend tax rate of 10.75%, the director pays £3,999 in dividend tax. This is £744 more than in the previous tax year, when the tax rate of 8.75% produced a tax bill of £3,255.

How do the taxes for an employee and a limited company director compare?

It is a useful comparison to illustrate the respective tax rates and the tax an employee earning £50,000 a year pays versus a company director extracting the same amount from a limited company.

Employee	PAYE at 20%	National insurance at 8%
First £12,570	Nil	Nil
Next £37,430	£7,486	£2,994

An employee will pay PAYE of £7,486 and national insurance contributions (NIC) of £2,994, which are total deductions of £10,480 and an effective tax rate of 21%.

Employers pay national insurance of 15% on employee salaries over £5,000 a year or £417 a month. In the above example, the employer’s national insurance is £6,750, increasing the employment cost to £56,750.

Limited company director tax on £50k

Someone working through a limited company as a director and sole employee needs a business turnover of around £60,000 to be able to take an income of £50,000. This breaks down as follows:

Limited Company Director	Tax	NIC
Company tax:
Employer NICs at 15%		1,136
Corporation tax	8,796
Personal tax:
PAYE on £12,570	Nil
Dividend allowance of £500	Nil
Dividend tax of 10.75% on £36,930	3,970

Total company tax	9,932
Total personal tax	3,970
TOTAL tax and NIC	13,902

The effective tax rate for a sole company director is 23% on £60,000 and 28% on £50,000.

Working through a limited company used to be more tax-efficient than traditional employment. However, repeated cuts to the dividend allowance, combined with the increase in the dividend tax rate, mean company directors pay more of their income to HMRC. On top of this, self-employed individuals don’t receive any of the benefits that employees get, such as paid holiday, sick leave and employer pension contributions. For someone weighing up whether to go self-employed or pursue traditional employment, a salaried role may look more attractive. This raises questions about whether current tax policy adequately rewards the risks taken by individuals running their own businesses.

Making tax digital – MTD

From April 2026, self-employed individuals and landlords with annual income of more than £50,000 must submit quarterly business summaries to HMRC digitally under MTD. Anyone affected must register with HMRC for MTD and keep digital accounting records using MTD compliant software. Quarterly details of income and expenses must be submitted digitally to HMRC, with a new final declaration replacing the current annual self-assessment return.

MTD rollout

MTD is being rolled out over the next three years, for self-employed individuals and landlords as follows:

From 6th April 2026 – with income over £50,000 a year
From 6th April 2027 – with income over £30,000 a year
From 6th April 2028 – with income over £20,000 a year

MTD does not apply to salary income from employment or directors of limited companies who pay themselves a salary and dividends.

MTD penalties

Failure to comply with MTD will result in penalties, where one penalty point is applied for each missed quarterly deadline. Reaching 4 points triggers a £200 fine, with late payment penalties becoming proportionate based on how long tax remains outstanding.

While MTD brings additional costs and administration, many small business owners may find that the benefits, such as better cash flow management, clearer tax planning and enhanced business decisions, outweigh the burden.

For more information about MTD, visit HMRC’s website:

Making Tax Digital for Income Tax – HMRC guide