The UK tax system is evolving, with key HMRC changes that every business needs to understand fully. These changes include revised corporation tax rates introduced in April 2023 and the phased expansion of Making Tax Digital for Income Tax, starting in April 2026. These updates affect how limited companies, self-employed individuals, and landlords must keep records, submit returns, and pay tax. It is essential to follow official guidance to stay compliant.
Why These HMRC Changes Matter for Your Business
HMRC aims to improve accuracy, transparency, and tax compliance by restructuring corporation tax tiers and fully digitising tax processes. The shift ensures businesses use approved software, submit regular updates, and adhere to new penalties. Familiarising yourself with these reforms helps protect your business from penalties and manage cash flow more effectively.
Corporation Tax Rates and Marginal Relief
Small Profits Rate (up to £50,000)
Companies with taxable profits of £50,000 or less pay a small profits rate of 19 per cent.
Main Rate (over £250,000)
Companies with profits over £250,000 are taxed at the main rate of 25 per cent.
Marginal Relief (between £50,000 and £250,000)
Profits in this band qualify for marginal relief, which gradually increases the effective tax rate between 19 per cent and 25 per cent. HMRC provides a calculator to determine the exact relief.
Associated Companies and Short Accounting Periods
If a company has associated companies or a short accounting period, the £50,000 and £250,000 thresholds are proportionally reduced.
Making Tax Digital (MTD) for Income Tax
Phased Roll-Out from April 2026
MTD for Income Tax becomes mandatory in stages:
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From 6 April 2026, for those with gross self-employment or property income over £50,000.
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From April 2027, for income over £30,000.
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From April 2028, for income over £20,000.
Requirements for Software, Digital Records and Quarterly Updates
Affected individuals and landlords must use MTD-compatible software to keep digital records of income and expenses and submit quarterly summaries. The software should generate reports summarising your financial data and allow annual submission with minimal adjustments.
Penalty System and Transition Support
MTD will introduce a points-based penalty system for late quarterly submissions. Under this system, penalty points accumulate for missed deadlines, with financial penalties applying once a certain threshold of points is reached. Financial penalties continue to apply under the current system, with MTD penalty reforms applying from April 2026.
Note: The penalty rates mentioned apply to current Self Assessment late payment penalties. The new MTD penalty framework from April 2026 may have different rates and structures, which HMRC will provide detailed guidance on closer to the implementation date.
Implications of Late Payment Penalties
Under the current system, late payment penalties are charged at 5% of the unpaid tax after 30 days, another 5% after six months, and a final 5% after 12 months, totalling up to 15% in penalties. This affects those reporting through MTD and heightens the need for timely submissions.
Other HMRC Modernisation Moves
HMRC is pushing digital-first communication, including enhanced online guidance tools, webinars, and APIs for agents to integrate software systems. This modernisation aims to simplify the filing process and provide better support.
Challenges Businesses May Face
Businesses may struggle with selecting compatible software, setting up digital processes, and adapting to more frequent reporting. The changing thresholds and penalty structures also create uncertainty without careful planning.
Benefits of These HMRC Reforms
The reforms offer improved accuracy, faster tax processing, and better financial forecasting. Digital record-keeping reduces human error, and quarterly updates smooth cash flow management. Overall, the changes encourage efficiency and transparency in tax compliance.
FAQs
What are the current UK corporation tax rates and thresholds?
The small profits rate is 19% up to £50,000. The main rate is 25% over £250,000. Marginal Relief applies to profits between those bands.
How does Marginal Relief work?
It provides a tapered tax on profits between £50,000 and £250,000 using a statutory formula. HMRC offers an online calculator to find the exact obligation.
When must I start using MTD for Income Tax?
If your combined self-employment and property income exceeds £50,000 from April 2026, £30,000 from April 2027, or £20,000 from April 2028.
What does MTD require me to do?
Keep digital records in compatible software and submit quarterly summaries of income and expenses. At year-end, you confirm and submit a full return based on these updates.
What penalties apply for late filing or payment?
A points-based system applies from April 2026 for late MTD filings. Late payments attract 5% penalties after 30 days, another 5% after six months, and another 5% after 12 months, totalling up to 15% in penalties.
Are there exemptions from MTD for Income Tax?
Yes, some individuals may be exempt, but only HMRC-approved exemptions apply. It is best to check with HMRC or your accountant if you believe you qualify.
Conclusion
Understanding these HMRC changes is vital to staying compliant and managing your business tax smoothly. Companies and individuals should act early. Review your profit levels or income to determine if MTD applies, choose MTD-compatible software, set up digital records, familiarise yourself with quarterly reporting, and consult verified resources or your accountant for tailored support.
Ready to make managing your tax easier? Contact Numbersmith for expert help with setting up digital processes, preparing quarterly updates, and ensuring you navigate HMRC’s new system effortlessly.
Disclaimer: This information is based on HMRC guidance as of August 21, 2025. Tax rules can change, and readers should verify current rates and rules with HMRC or a qualified tax advisor before making decisions.