Last week’s latest Tax Update 2026 (policy paper) signals one thing loud and clear: the UK tax system is becoming more complex, not less.
From proposed changes to income tax payments and VAT, to tougher HMRC enforcement powers and new digital requirements, businesses will need to stay informed to avoid costly mistakes. While many of these announcements are currently under consultation, they provide a clear indication of the government’s direction of travel.
Here’s a summary of the key proposals and what they could mean for your business.
HMRC Set to Gain Stronger Debt Collection Powers
Perhaps the most eye-catching proposal is HMRC’s plan to recover lower-value tax debts directly from taxpayers’ bank accounts through instalment payments.
The proposal would apply where HMRC believes a taxpayer can pay but has ignored repeated attempts to make contact. Rather than pursuing lengthy debt recovery action, HMRC could collect the outstanding tax directly by agreed instalments from the taxpayer’s bank account.
While this measure is still under consultation, it demonstrates HMRC’s continued focus on improving tax collection and reducing unpaid tax debts.
For businesses, it reinforces the importance of responding promptly to HMRC correspondence and addressing payment issues before they escalate. As we have said before, don’t ignore HMRC’s demands; consider the time to pay service.
Income Tax Payments Could Become More Frequent
Another significant consultation focuses on changing how Income Tax Self-Assessment (ITSA) liabilities are paid.
From April 2029, taxpayers who receive income through both PAYE and Self-Assessment may be required to pay their estimated Self-Assessment tax throughout the year rather than making large payments after the end of the tax year.
The government is also exploring whether similar arrangements could eventually apply to taxpayers whose income comes entirely through Self-Assessment.
For sole traders, landlords and company directors, this could have a major impact on cash flow planning and budgeting.
Inheritance Tax reporting is also expected to become simpler for certain trusts that pay no tax, reducing administrative burdens for some taxpayers.
Distribution and capital repayments by Companies – big changes
Company owners and shareholders should pay close attention to a wide-ranging consultation on how value is extracted from companies. At present, payments and other returns made by companies to individual UK shareholders can be taxed as income, capital, or sometimes a combination of both. The rules are complex, overlapping and often difficult to apply in practice.
The consultation covers a broad range of situations that commonly arise during business transactions, including distributions, repayments of share capital, share buybacks, reorganisations, demergers, and loans between companies and their shareholders.
Importantly, the proposed changes are aimed at individual and trust shareholders. The corporation tax rules for companies are not expected to change.
In broad terms, the proposals being considered include:
- Aligning the tax treatment of distributions from UK and non-UK resident companies, which could bring more overseas company distributions within the scope of income tax.
- Reducing the circumstances in which returns of capital can be taxed as capital rather than income.
- Stopping companies from using reductions of capital to implement tax-neutral demergers, unless new statutory conditions are met.
- Introducing a new tax charge on loans made by non-UK resident close companies to their participators.
- Bringing the rules for loans to participators more closely into line with the distributions code.
- Tightening the rules that allow capital treatment when a retiring owner-manager sells shares back to their company.
- Introducing new anti-avoidance rules to replace, or sit alongside, the existing transactions in the securities regime.
VAT Changes Continue to Evolve
VAT remains another area of significant change.
The government is consulting on extending online marketplace VAT liability rules to UK-based businesses, following previous reforms aimed at overseas sellers.
Another proposal would introduce a zero per cent VAT on land sold for the construction of social housing.
Meanwhile, HMRC is also exploring how businesses’ existing digital accounting records could be used more effectively to improve VAT compliance and reduce administrative burdens.
As Making Tax Digital continues to expand, businesses should expect HMRC to make greater use of digital information in the years ahead.
Customs and International Trade
Businesses involved in importing or exporting goods should also be aware of several important developments.
The government plans to accelerate the introduction of new low-value import customs arrangements to October 2028, which is six months earlier than originally proposed.
Additional consultations cover:
- Greater digitalisation of customs processes
- Expansion of electronic ATA Carnets
- New voluntary customs disclosure frameworks
- Higher standards and possible certification for customs intermediaries
- Stronger customs penalties and enforcement
For businesses trading internationally, these proposals highlight the ongoing move towards a more digital customs environment.
Employment Tax Reviews
Employers should also keep an eye on several employment tax reviews.
The government intends to:
- Review benchmark expense rates used for employee travel and accommodation.
- Clarify the tax treatment of globally mobile directors.
- Gather evidence on possible reforms to PAYE Settlement Agreements.
While no immediate changes have been announced, these reviews could eventually simplify some employer reporting obligations.
Digital Tax Administration Continues
One consistent theme throughout Tax Update 2026 is digitalisation.
The government has confirmed that Peppol will become the UK’s core interoperability network for electronic invoicing.
This follows the announcement that, from April 2029, VAT invoices will need to be issued electronically in a specified format.
HMRC is also consulting on software standards for electronic and mobile point-of-sale (EPOS and MPOS) systems, reflecting its wider ambition to improve tax compliance through digital technology.
Businesses should expect increasing integration between accounting software, invoicing systems and HMRC over the coming years.
What Does This Mean for Small Businesses?
Although many of these measures are still under consultation, the overall message is unmistakable.
The UK tax system is becoming increasingly digital, increasingly regulated and increasingly proactive in collecting tax.
For small businesses, keeping up with these changes can be challenging. Business owners already juggle running their companies, managing staff, serving customers and maintaining cash flow.
Trying to stay on top of evolving tax legislation at the same time can quickly become overwhelming.
Professional advice is no longer simply about completing tax returns; it is about helping businesses make informed decisions, remain compliant and avoid unexpected tax liabilities.
How Myers Clark Can Help
With tax legislation changing at an ever-increasing pace, having experienced professional advisers on your side has never been more valuable.
Whether you’re a sole trader, limited company, family business or growing enterprise, our team can help you understand how the latest tax changes affect your business, identify planning opportunities and ensure you remain fully compliant with HMRC requirements.
Tax isn’t getting simpler; it is getting more complicated. The good news is you don’t have to navigate it alone.
Visit https://www.myersclark.co.uk/ to discover how Myers Clark can support your business, provide expert tax advice and help you stay ahead of the ever-changing tax landscape.
If you would like to have a say in any of the topics mentioned, you can find the details on the consultations here.
We are also happy to speak with you and address any questions you may have. Please email your normal manager in the first instance. If you are not yet working with us, here’s who we help.