SME Tax News August 2026: MTD for Income Tax, Corporation Tax Penalties & What UK Businesses Must Know

By Jessica | 14 August 2026

This article is for limited companies and growing SMEs. It provides general information, not company-specific tax advice.

If you are looking for accountants for small business, corporation tax accountants or a trusted business accountant UK service, Accountant Search can help you find a suitable match from £85pm+.

August has brought several important tax developments for UK businesses. The main areas to understand are Making Tax Digital for Income Tax, higher Corporation Tax late-filing penalties, the effect of associated companies on profit thresholds and the confirmed date of the Autumn Budget.

One important correction is needed at the outset: Corporation Tax does not have a new penalty points system from April 2026. The penalty points rules relate mainly to Making Tax Digital for Income Tax and VAT. For companies, Corporation Tax late-filing penalties have increased under a fixed-penalty and tax-geared system.

1. Making Tax Digital for Income Tax is now live

Making Tax Digital for Income Tax began on 6 April 2026 for individuals with qualifying income above £50,000 from self-employment, property or both.

This is not a new filing system for limited companies. It applies to individuals, such as sole traders and landlords. However, it is relevant to company directors and SME owners who also have personal business or property income.

Under the first phase of MTD for Income Tax, affected individuals must:

• Keep digital records using compatible software.
• Send quarterly updates to HMRC.
• Submit an annual tax return through compatible software.
• Continue paying any tax due by the usual deadlines.

HMRC’s MTD for Income Tax guidance confirms that qualifying income is measured before expenses and includes income from self-employment and property.

The first quarterly update deadline was 7 August 2026. If you or a director of your company has missed this deadline, it is sensible to act quickly. HMRC has introduced a soft-landing approach for the first year, meaning penalty points are not issued for late quarterly updates during that initial period. However, the digital record-keeping and filing obligations still apply.

From April 2027, the threshold is scheduled to fall to £30,000, with a further reduction to £20,000 planned from April 2028.

What limited companies need to know about MTD

There is currently no mandatory MTD for Corporation Tax. A limited company does not have to send quarterly Corporation Tax updates simply because MTD for Income Tax has started.

Companies continue to file their annual Company Tax Return, usually a CT600, online. They must also keep accurate accounting records and meet Companies House filing requirements.

The distinction matters:

• MTD for Income Tax: applies to qualifying individuals with self-employment or property income.
• Corporation Tax: applies to company profits and continues to be filed through the existing annual return process.
• VAT: has its own digital filing and penalty rules.

A director may therefore have two separate obligations: the company’s Corporation Tax return and their own personal MTD for Income Tax obligations.

2. Corporation Tax late-filing penalties are higher

From 1 April 2026, Corporation Tax late-filing penalties increased for returns with filing dates on or after that date.

The current HMRC penalty structure is:

• One day late: £200 penalty.
• More than three months late: a further £200 penalty.
• Six months late: HMRC may estimate the Corporation Tax due and charge a penalty of 10% of the unpaid tax.
• Twelve months late: a further penalty of 10% of the unpaid tax may apply.
• Three successive late returns: the fixed penalties can increase significantly, with the initial penalty rising to £1,000.

These penalties apply even if the company has no Corporation Tax to pay. Filing a nil or loss-making return late can still result in a fixed penalty.

The key point for growing SMEs is that a delayed year-end process can quickly become expensive. A business may be waiting for bookkeeping records, bank reconciliations, stock figures or director loan information, but the filing deadline does not usually move because internal records are incomplete.

The safest approach is to agree a timetable well before the deadline. Your accountant should have enough time to:

1. Complete the bookkeeping.
2. Reconcile the bank and control accounts.
3. Review director transactions.
4. Identify tax adjustments.
5. Prepare and approve the accounts.
6. Submit the CT600 and supporting computations.

If you receive a penalty notice, first make sure the Corporation Tax return has been filed. You may be able to appeal a late-filing penalty for Corporation Tax if you had a reasonable excuse, but an appeal is not a substitute for filing the outstanding return.

3. Associated companies can reduce Corporation Tax thresholds

For the financial year beginning 1 April 2026, the headline Corporation Tax rates remain:

• 19% for profits within the small profits rate.
• 25% for profits above the main-rate threshold.
• Marginal relief for profits between the two thresholds.

For a 12-month accounting period with no associated companies, the standard thresholds are:

• £50,000 lower limit.
• £250,000 upper limit.

However, these thresholds may be divided where companies are associated. In simple terms, companies under common control may need to share the thresholds.

For example:

Total companies in the associated group	Lower limit per company	Upper limit per company
One company	£50,000	£250,000
Two companies	£25,000	£125,000
Three companies	Approximately £16,667	Approximately £83,333
Four companies	£12,500	£62,500

These figures assume 12-month accounting periods and are provided as an illustration only.

An associated company may arise where one company controls another or where both companies are controlled by the same person or group of people. The rules can be complicated where there are family interests, shareholder agreements, dormant companies or companies outside the UK.

Short accounting periods can also reduce the thresholds proportionately. A company with a nine-month accounting period, for example, does not automatically receive the full annual limits.

Why this matters to growing SMEs

Many growing businesses create a second company for a new service, property ownership, investment activity or a separate trading division. That structure may be commercially sensible, but it can affect the Corporation Tax rate that applies to each company.

Before incorporating another company, speak to corporation tax accountants about:

• Whether the proposed companies will be associated.
• How the profit thresholds may be divided.
• Whether each company has a genuine commercial purpose.
• How dividends, loans and shared costs will be recorded.
• Whether the group needs consolidated management information.
• Whether a short accounting period will affect the calculation.

Do not assume that placing different activities into separate companies automatically preserves the £50,000 and £250,000 thresholds.

4. The Autumn Budget is confirmed for 28 October 2026

The Autumn Budget will take place on Wednesday 28 October 2026. The date was confirmed by HM Treasury in its letter to the Treasury Select Committee.

At this stage, the contents of the Budget are not confirmed. SMEs should be cautious about acting on predictions or headlines before the Chancellor makes an announcement.

However, the date is useful for business planning. Growing companies may want to review:

• Planned recruitment and payroll costs.
• Proposed equipment or property purchases.
• Dividend and salary planning.
• Cash reserves for Corporation Tax and VAT.
• Investment or expansion decisions.
• Any tax relief claims that need professional review.

If you are considering a major transaction before 28 October, ask your accountant whether timing could affect the tax outcome. It may be appropriate to proceed before the Budget, but it may also be better to wait. The answer depends on the commercial need, cash flow and the likelihood of any relevant policy change.

5. August checklist for limited companies and growing SMEs

The practical priorities this month are straightforward:

• Check whether your company’s Corporation Tax return is due soon.
• Confirm that bookkeeping and year-end records are up to date.
• Review whether any other companies may be associated with yours.
• Check how the associated company rules affect your profit thresholds.
• Review director loan account balances.
• Make sure personal MTD obligations are being handled separately where relevant.
• Avoid treating the Corporation Tax regime as a penalty points system.
• Keep enough cash available for tax payments and unexpected liabilities.
• Discuss major investments or restructures before the Autumn Budget.

The right accountant should do more than submit annual accounts. They should help you understand how tax rules affect cash flow, structure and growth.

Find accountants for small business from £85pm+

Accountant Search matches limited companies and growing SMEs with accountants who can provide accounting and tax support. Whether you need help with Corporation Tax, company accounts, payroll, bookkeeping or personal tax obligations alongside your business, you can find an accountant suited to your needs from £85pm+.

You can also explore our dedicated limited company accountant page or learn more about support for personal filing through our Self Assessment accountant page.

Information checked against HMRC, HM Treasury, Deloitte and AccountingWEB resources available at the time of publication on 14 August 2026. Tax rules can change, so obtain professional advice before making a business or tax decision.