What should my small business do now to prepare for possible Budget 2026 Corporation Tax changes?

Start modelling different profit and tax scenarios using your current management accounts. This helps you understand how potential shifts to corporation tax rates, marginal relief or full expensing could affect cash flow, dividends and reinvestment plans before the Budget is announced.

How can SMEs plan capital investment before the Budget confirms any changes?

Compile upcoming equipment and system investment plans and model the tax impact under both current and potential Budget scenarios. This helps you time purchases strategically to maximise reliefs such as full expensing or AIA.

What should businesses do now to stay compliant with Companies House reforms and HMRC’s tightening oversight?

Prepare ID verification for directors and PSCs, strengthen digital record-keeping, and address any recurring filing inaccuracies. This reduces the risk of penalties or rejected submissions as enforcement becomes stricter in 2026–27.

UK Budget 2026: What Small Business Owners Should Pay Attention To (Pre-Budget Analysis)

Q: How can I reduce VAT and MTD risk ahead of potential Budget updates?

Implement real-time turnover tracking and review whether voluntary VAT registration, partial exemption planning or improved digital records can reduce errors. This ensures your business is ready if the VAT threshold or digital reporting rules change.

Q: What steps should I take now to manage rising employment costs in 2026?

Build payroll forecasts that include potential increases to Employer NIC, National Living Wage rates and auto-enrolment pension requirements. This helps you plan hiring, pricing and cash flow more confidently ahead of the Budget.

Yashi Shrivastav
Dec 19, 2025
4 min read

Budget season can feel like a plot twist you didn’t ask for - the kind that can change your cash flow, tax bill or hiring plans overnight. One announcement can tighten margins, reshape your forecasts, or rewrite the rules you’ve been planning around.

And with the 2026 Budget still under wraps, founders are left asking: What’s likely to change, what could cost more, and how do I stay ahead of it?

Although nothing has been announced yet, UK Budgets almost always target the same pressure points: tax rates, investment incentives, employment costs, VAT, and compliance rules.

This pre-Budget snapshot cuts through the noise so SMEs know what to watch, and how to prepare, based on guidance in place as of December 2025.

1. Corporation Tax & SME Planning

Current position:

25% main rate for profits > £250k.
19% small profits rate up to £50k, with marginal relief between.
Limits are adjusted for associated companies, which can pull smaller businesses into higher rates sooner.

Chancellors regularly adjust reliefs (R&D, creative sector, AIA, full expensing), even when headline rates stay stable. These changes can affect retained profits, director remuneration planning, and the timing of investment.

Founder Tip: Use management accounts and forecasting to model potential Budget scenarios ahead of time instead of reacting under pressure.

2. VAT: Thresholds, Rates & Digital Compliance

Where things stand (late 2025):

VAT registration threshold: £90,000 (up from £85k in April 2024).
Threshold applies to rolling 12-month taxable turnover.
MTD for VAT: mandatory for all VAT-registered businesses.

What to watch:

Possible adjustments to the £90k threshold.
Targeted sector VAT changes.
MTD for Income Tax (MTD ITSA) rollout:
- From April 2026: applies to self-employed individuals and landlords with income over £50,000.
- From April 2027: extends to those with income over £30,000.
- The government has indicated plans to expand to lower income bands (e.g. ~£20k) around 2028, but this requires further legislation and is not yet confirmed.

Why it matters: Many SMEs exceed the threshold unintentionally, a static threshold during inflation quietly pulls more businesses into VAT.

Founder Tip: Accurate, up-to-date bookkeeping helps you track turnover, avoid surprises, and assess whether voluntary VAT registration makes sense.

3. Payroll, Employment Costs & Workplace Pensions

Budgets and fiscal updates often impact employment costs:

Employer NIC rates and thresholds can change independently of Income Tax.
National Minimum Wage / National Living Wage increases annually.
Auto-enrolment pensions may see adjustments to eligibility or contribution levels.

These shifts can significantly affect payroll, your largest controllable expense. Even a small wage or NIC increase can add thousands to annual costs across a team. Accurate payroll protects compliance, keeps staff confident, and reduces HMRC enquiry risk.

4. Capital Allowances & Investment Reliefs

Current rules:

AIA: £1m permanent annual limit.
Full expensing: permanent 100% first-year deduction for qualifying plant and machinery for companies.
50% first-year allowance for special-rate assets.
Full expensing excludes most leased assets and doesn’t apply to unincorporated businesses.

Budgets often refine which assets qualify or introduce targeted incentives (green investment, tech, regional development). These rules can influence when it’s most tax-efficient to invest.

Founder Tip: Use Budget timing to plan purchases strategically and smooth cash flow.

5. HMRC & Companies House: Compliance Tightening

A clear trend is emerging: more scrutiny, more automation, more transparency.

Companies House reforms

Mandatory ID verification for directors, PSCs, and LLP members begins 18 Nov 2025, with a 12-month transition window for existing entities.
Failure to verify can result in rejected filings, penalties, or in serious cases, dissolution.

HMRC digital enforcement

MTD for VAT already universal.
MTD for Income Tax from April 2026 introduces a points-based penalty system for late filings, but with a soft-landing year:
- Quarterly submission penalties are eased in 2026-27.
- Full penalty regime applies from 2027 onwards.

HMRC’s data-matching increases the risk of triggering enquiries for inaccuracies or late filings.

Why SMEs should care: Compliance is shifting toward real-time monitoring. Penalties are tougher, and errors are easier to detect.

AMS Support: We handle VAT, CT returns, payroll, ERS, Companies House filings, and guide you through ID verification - reducing admin pressure and compliance risk.

Here’s a quick infographic with the key steps SMEs can take now to prepare for the 2026 Budget. Use it as a simple checklist to stay compliant, organised, and ready for whatever’s announced.

SME action steps infographic for preparing for the UK Budget.

Frequently Asked Questions

Q: How to prepare for possible Budget 2026 Corporation Tax changes?

Begin modelling multiple profit scenarios using your current management accounts. This helps you understand how rate shifts, marginal relief changes or updates to full expensing could affect tax bills, dividends and reinvestment decisions before the Budget is announced.

Q: How can I reduce VAT and MTD risk ahead of potential Budget updates?

Set up real-time turnover tracking and review whether voluntary VAT registration, partial exemption planning or digital record improvements could reduce errors. Preparing early means you’re not scrambling if the threshold or reporting rules change.

Q: What steps should I take now to manage rising employment costs in 2026?

Run payroll cost forecasts that factor in expected rises to the National Living Wage, Employer NIC adjustments, and potential pension rule changes. This allows you to plan hiring, pricing and cash flow with fewer surprises when the Budget lands.

UK Budget 2026: Stay Ahead

Even before details of the 2026 Budget land, UK SMEs can get ahead by tightening their systems, reviewing forecasts, and planning with intention. The more visibility you have now, the fewer surprises you’ll face later.

AMS is here to help you stay compliant, confident and financially prepared, whatever the Chancellor announces next. Our mission is simple: Accounting Made Simple.

If you’d like support preparing for the UK Budget 2026 or reviewing your numbers before year-end, book a free consultation with AMS and get clarity you can build on.