SME Accounting News & Deep Dives: MTD Auto-Enrolment Begins, HMRC Employer Bulletin & Salary vs Dividends in 2026/27
Monday 31 August 2026 | Author: Sam
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For owners searching for accountants for small business, this week brings several important changes. HMRC is beginning automatic enrolment for some taxpayers under Making Tax Digital for Income Tax, the latest Employer Bulletin includes payroll and benefits updates, and the 2026/27 tax year has changed the balance between salary and dividends.
This edition also looks at director pension contributions and how to prepare for the Autumn Budget without making decisions based on speculation.
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1. MTD for Income Tax auto-enrolment begins in September
From September 2026, HMRC will begin automatically enrolling eligible sole traders and landlords who have not registered for Making Tax Digital for Income Tax.
This first group is based on 2024/25 tax return information. Generally, taxpayers are in scope where their combined gross income from sole-trade and property businesses exceeded £50,000.
This is mainly a personal tax obligation rather than a limited company obligation. However, it matters to company directors who also have:
A separate sole-trade business
Rental or property income
Other self-employed income outside their company
A portfolio of income sources reported through Self-Assessment
HMRC will write to taxpayers it enrols. They will need to log in to their HMRC account and complete a checking step to verify that the business details, descriptions and income sources are correct.
This is important because HMRC may hold historic business information that is incomplete or out of date. If a taxpayer signs up directly, they have more control over the details entered and the software connection. If HMRC enrols them first, correcting information may require direct contact with HMRC.
The ICAEW update on HMRC’s MTD sign-ups explains the timetable and checking process.
More than 436,000 taxpayers had filed their first quarterly update by 7 August 2026. That shows strong early participation, but many taxpayers still need to complete their setup.
There is also planned HMRC system maintenance from 5pm on 11 September until 1pm on 15 September 2026. MTD sign-ups will not be available during this period, so taxpayers and advisers should avoid leaving registration and software setup until the last minute.
The next major expansion begins in April 2027, when the income threshold is expected to reduce to £30,000 based on 2025/26 tax return information.
Although there will be no penalty points for late quarterly updates during 2026/27, digital records are still mandatory. The points-based penalty system is expected to apply from April 2027.
2. What the August 2026 Employer Bulletin means for SMEs
The HMRC Employer Bulletin for August 2026 contains several practical reminders for companies with employees and directors on payroll.
Review your benefits records
Mandatory payrolling of benefits in kind will be introduced in phases from April 2027. The first phase covers:
Company cars
Car fuel
Vans
Van fuel
Medical benefits
Most other benefits are expected to follow from April 2028.
Growing companies should prepare by listing every benefit provided to employees and directors. Check whether each item is already being processed through payroll or reported on a P11D.
Your payroll software must also be able to handle real-time benefit reporting. Employees should be told that their tax codes and take-home pay may change when benefits move into real-time payrolling.
Check mileage and fuel rates
Approved Mileage Allowance Payments for 2026/27 increased to:
55p per mile for the first 10,000 business miles
25p per mile after 10,000 miles
The revised rates are backdated to 6 April 2026. If your business has continued paying mileage at the old rate, check whether payroll needs correcting.
HMRC has also published new advisory fuel rates applying from 1 September 2026. Companies providing company cars should review the rates used for business mileage and private fuel calculations.
Watch for PAYE coding changes
HMRC is asking agents for feedback on a proposed digital service for reporting information that may affect PAYE coding changes.
For SMEs, the practical message is simple: keep employee benefits records, payroll records and HMRC information aligned. Incorrect or delayed benefit information can lead to incorrect tax deductions for employees and additional administration for the company.
3. Salary versus dividends in 2026/27
The common small-company strategy of paying a modest salary and taking additional income as dividends still applies in many cases. However, the numbers have changed.
From April 2026, the basic-rate dividend tax rate increased from 8.75% to 10.75%, while the higher-rate dividend tax rate increased from 33.75% to 35.75%. The dividend allowance remains £500.
This means directors should not automatically repeat last year’s salary and dividend strategy without reviewing the figures.
The £12,570 salary option
A salary of up to £12,570 may use the director’s Personal Allowance and National Insurance primary threshold. Where the company is eligible for Employment Allowance, this can be an efficient salary level because:
The salary may be covered by the Personal Allowance
Employee National Insurance may not be due at that level
Employer National Insurance may be offset by Employment Allowance
The salary is normally deductible for Corporation Tax purposes
However, a sole-director company with no other employees generally cannot claim Employment Allowance.
For a sole director paid £12,570 in 2026/27, employer National Insurance is approximately £1,135.50, calculated broadly as:
(£12,570 - £5,000) × 15% = £1,135.50
The £6,708 NI-efficient salary option
Some sole directors instead consider a salary around £6,708, the 2026/27 Lower Earnings Limit.
This can preserve National Insurance credits while reducing employer National Insurance. The approximate employer NIC cost would be:
(£6,708 - £5,000) × 15% = £256.20
The difference can be taken into account when deciding whether to pay a higher salary or retain more profit for dividends. The right choice depends on the director’s other income, company profits, Employment Allowance position, pension record and personal tax band.
Dividends must come from distributable profits
Dividends are not simply another type of salary. They can only be paid from available distributable profits.
Before declaring a dividend, the company should check its accounts and prepare appropriate board records and dividend vouchers. Paying dividends when the company does not have sufficient distributable profits can create an illegal dividend.
Director loan accounts also need careful monitoring. If a director withdraws money that is not salary, dividend or an approved expense reimbursement, the balance may become overdrawn. This can lead to a Section 455 Corporation Tax charge and personal tax complications.
A corporation tax accountant can help review retained profits, dividend capacity and director loan transactions before money is withdrawn.
4. Director pension contributions as an extraction route
Employer pension contributions can be useful for owner-managers who do not need all company profits immediately as personal income.
A limited company can normally make an employer contribution to a registered pension scheme. Subject to the usual rules, the payment may be:
Deductible when calculating the company’s taxable profits
Free of employer National Insurance
Free of employee National Insurance
Not treated as immediate personal income
The standard pension annual allowance for 2026/27 is £60,000, covering employer and personal pension inputs together.
The annual allowance may be reduced for high earners or for someone who has flexibly accessed a defined contribution pension. Unused allowance from the previous three tax years may also be available under carry-forward rules.
The company should consider whether the contribution is commercially justifiable and pay it before the relevant accounting year-end if Corporation Tax relief is intended for that period. Pension contributions are long-term planning decisions, so directors should consider access rules, investment risk and personal retirement objectives rather than treating them as a short-term cash withdrawal.
5. Autumn Budget 2026: prepare, but do not speculate
The Autumn Budget is confirmed for 28 October 2026, as set out in the HM Treasury Budget date announcement.
For a growing SME, the best preparation is not to rush into a tax decision based on rumours. Instead, prepare useful information now:
A 12-month cash-flow forecast
Current and expected Corporation Tax liabilities
Planned equipment or technology investment
Director remuneration and pension contribution plans
Payroll and benefits information
Details of borrowing, grants or major contracts
A list of decisions that may be affected by tax changes
This will allow your accountant to assess confirmed measures quickly after the Budget and explain what they mean for your company.
SME action list for the week
Check whether you or any director has separate sole-trade or property income that may fall within MTD for Income Tax.
Review HMRC account details and prepare for the September auto-enrolment checking step.
Complete any MTD sign-up work before the planned 11–15 September maintenance window.
Review payroll software for benefits-in-kind payrolling and real-time reporting capability.
Update mileage and advisory fuel rate procedures from 1 September.
Recalculate the likely cost of a £12,570 salary versus a lower salary around £6,708.
Check distributable profits before declaring dividends.
Review director loan accounts for overdrawn balances.
Consider whether an employer pension contribution fits the company’s cash-flow and long-term plans.
Prepare cash-flow and investment information before the Autumn Budget.
Self-Assessment tick-box
Self-Assessment tick-box: if you are a company director with dividends, benefits in kind, property income or separate sole-trade income, gather the relevant figures and check whether you need personal tax or MTD support.
Find an accountant for your growing company
The right adviser can help with more than annual accounts. Growing companies may need support with payroll, Corporation Tax, dividends, director loan accounts, pension planning and HMRC digital changes.
If you have been searching for an accountant near me, Accountant Search can help you compare suitable professionals through a curated directory and digital matchmaking/referral platform. We are not an accountancy practice and do not provide accounting services directly. Instead, we collect your requirements and help connect you with accountants who may be able to support your business.
You can find an accountant, explore support from a limited company accountant, or review Self-Assessment accountant support.
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