Spring Budget 2026: Business Taxes, Self-Employed and IR35

Quick answer

The Spring Budget 2026 made no structural changes to UK business taxation. Every major rate, threshold and relief affecting limited companies, sole traders, partnerships and contractors carries from 2025/26 into 2026/27.

This is the final part of our Spring Budget 2026 series:

• Part 1: Income tax & personal allowance
• Part 2: National Insurance
• Part 3: Pensions, ISAs and savings
• Part 4: Housing and stamp duty
• Part 5: Business and self-employed ← you are here

Corporation Tax — three rates, unchanged

The two-rate structure has been in place since April 2023. The marginal relief band creates an effective 26.5% rate on profits between £50,000 and £250,000 — actually higher than the 25% main rate on this slice.

Why "marginal" hurts more than "main"

For a company with £150,000 of profit:

• First £50,000 taxed at 19% = £9,500.
• Next £100,000 taxed at effective 26.5% = £26,500.
• Total CT: £36,000.
• Effective rate: 24% — close to the 25% main rate but with extra complexity.

Many medium-sized businesses see this as the worst of both worlds — they're paying close to main rate without being big enough to invest in tax structuring.

Dividends — the squeeze continues

The dividend allowance has been on a downward path: £5,000 → £2,000 → £1,000 → £500 (April 2024). Frozen at £500 in this Budget.

Combined with dividend tax rates:

For owner-managers using salary-plus-dividend strategies, the maths in 2026/27:

Worked example — limited company director, £60,000 total

Taking £12,570 salary (using PA + just below Secondary NI Threshold) + £47,430 dividends:

• Salary £12,570: no PAYE income tax, no employee NI (under PT).
• Employer NI on salary: about £1,135.50 (15% on slice above £5,000).
• Corporation Tax on company profit before dividends: assume £60,000 + £1,135 = £61,135 of total cost reducing profit. CT on company on that approx 19% (assuming small profits) = ~£10,400 already paid by the company on the £60k extracted.
• Personal dividend tax:
  • £500 dividend allowance: 0%
  • Remaining basic-rate band (£50,270 - £12,570 = £37,700): 8.75% on £37,700 = £3,299
  • Higher-rate slice (£47,430 - £37,500 = £9,230): 33.75% on £9,230 = £3,115
  • Total personal dividend tax: £6,414
• Net to director: £12,570 + £47,430 - £6,414 = £53,586

Compared to taking the same gross via PAYE salary only (£60k):

• Income tax: £6,486 + employee NI £2,594 = £9,080
• Net to employee: £50,920

The dividend route still saves around £2,666 in this specific case — but considerably less than it did pre-2023 when the dividend allowance was £2,000 and CT was 19% across the board.

Self-employed — Class 4 unchanged

For sole traders and partners, Class 4 NI rates are unchanged:

Class 2 NI continues to be effectively abolished. Self-employed people with profits above the Small Profits Threshold (£6,725) automatically receive a State Pension qualifying year without paying Class 2.

Below £6,725 of profits, voluntary Class 2 (£3.45/week) remains available to maintain qualifying years.

R&D tax credits — the merged scheme

The merged R&D scheme that came into force from April 2024 continues unchanged:

• Standard merged scheme: 20% expenditure credit (above-the-line, taxable). Net benefit ~15% for profitable companies.
• R&D Intensive SMEs: for loss-making SMEs spending ≥30% of total expenditure on R&D, an enhanced 27% effective rate.
• Going-concern requirement: intensified compliance — HMRC rejected approximately 1 in 5 claims in 2024/25 vs ~5% in 2022/23.

The Budget confirmed no further reduction in headline rates. The OBR forecasts R&D credit costs to government continuing to grow as eligible firms increase, but per-claim values stable.

IR35 / off-payroll working

No new legislation. The 2024 "set-off" rules — which allow HMRC to deduct tax already paid by the contractor when reassessing an engagement as inside-IR35 — remain. This was the biggest pro-contractor change in recent years and meant a major reduction in double-counting in reassessment cases.

HMRC's compliance focus continues to concentrate on:

• Financial services — long-standing high-risk sector.
• IT contracting in large enterprises.
• Consulting firms placing contractors with end clients.

For contractors deciding between inside-IR35 (via umbrella) and outside-IR35 (via PSC):

Worked example — £500/day contractor

The outside-IR35 advantage remains real but narrower than 2017 (~£20,000 advantage then). The risk premium of being reassessed inside-IR35 retrospectively makes engagement-by-engagement contract review essential.

Making Tax Digital for ITSA — April 2026 start

The biggest operational change for sole traders in 2026/27 isn't a tax-rate change — it's Making Tax Digital for Income Tax Self Assessment (MTD-ITSA).

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must:

• Keep digital records (HMRC-compatible software).
• File quarterly updates to HMRC (within 1 month of each quarter end).
• File a year-end declaration by 31 January (replacing the current annual return).

From April 2027, the threshold drops to £30,000. From April 2028 (currently scheduled), to £20,000.

What "qualifying income" means

It's the gross turnover/rental income, not profit. A sole trader with £55,000 turnover and £15,000 of expenses (£40,000 profit) is in scope — qualifying income is £55,000.

Software requirements

You need HMRC-recognised MTD software. Common options: FreeAgent, Xero, QuickBooks, Sage, FreshBooks. Most have MTD-ITSA modules that are free or already included.

Spreadsheet-based bookkeeping is still allowed with "bridging software" that submits the quarterly updates.

Penalty system

MTD-ITSA brings the new points-based late-submission penalty system:

• Each missed quarterly update = 1 penalty point.
• 4 points = £200 fine.
• Subsequent failures each = £200.
• Points reset to zero after a clean period (24 months).

This is more lenient on occasional missed deadlines than the current system, but punishes serial latecomers harder.

Other relevant changes from prior Budgets that bite in 2026/27

These weren't announced in this Budget — they were announced earlier but take effect now:

• Furnished Holiday Letting: tax advantages abolished from April 2026 (taxed as standard rental).
• Non-dom regime reform: the long-running non-dom changes complete; from April 2025, foreign income/gains taxed on a residence basis for new arrivals.
• Business Asset Disposal Relief (BADR): the rate rises from 14% (current) to 18% from April 2026. Anyone planning to sell a business should check timing.
• Investors' Relief: lifetime allowance reduced from £10m to £1m from April 2026.

For company directors selling their business: the BADR rate change from 14% to 18% means an extra £40,000 of tax on a £1m gain. Significant.

Practical actions for 2026/27

For limited companies:

1. Continue using salary at the Secondary NI Threshold (£5,000) + dividend extraction — still tax-efficient.
2. If planning a sale, complete before 6 April 2026 to capture 14% BADR rather than 18%.
3. Watch the £50,000 / £250,000 CT brackets — if you can shift profits/timing across the marginal relief band, the saving can be meaningful.

For sole traders / partnerships:

1. Check if MTD-ITSA applies to you from April 2026 (qualifying income > £50k).
2. Sign up for compatible software before 6 April 2026.
3. Confirm you're claiming all allowable expenses — see our Self Assessment series Part 4 (forthcoming).

For contractors:

1. Audit each engagement for IR35 status against post-2024 case law.
2. Use the 2024 set-off rules if reassessed — it's a material protection.
3. Plan retention — outside-IR35 contracts in 2026 are increasingly used as a competitive advantage by clients.

End of Spring Budget 2026 series

That completes our 5-part deep-dive into the Spring Budget 2026:

• Part 1: Income tax & personal allowance
• Part 2: National Insurance
• Part 3: Pensions, ISAs and savings
• Part 4: Housing and stamp duty
• Part 5: Business and self-employed ← end

The overall picture: a Budget of continuity, not reform. Frozen thresholds + fiscal drag = quietly rising tax revenue without rate-rise headlines.

Sources

• HMRC: Corporation Tax rates and reliefs
• HMRC: Self-employed: National Insurance
• HMRC: Off-payroll working (IR35)
• HMRC: Making Tax Digital for Income Tax
• HMRC: R&D tax reliefs
• HM Treasury: Spring Budget 2026
• OBR Economic and fiscal outlook (March 2026)