The financial landscape for business owners is becoming more complex, with the recent passing of the Employment Rights Act 2025 into law and significant tax and regulatory changes planned for 2026.
Keep reading to discover three important ways a financial planner can help your business-owning clients adapt to these changes and manage their finances with confidence.
1. Ease the transition to Making Tax Digital for Income Tax
The challenge: From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will become mandatory for sole traders and landlords with an annual gross income of more than £50,000 (falling to £30,000 by 2027).
MTD for ITSA requirements include:
- Recording all income and expenses digitally using MTD-compliant software or spreadsheets (paper records are not permitted)
- Submitting quarterly updates to HMRC
- Using MTD-compliant software to complete and submit a “Final Declaration” (this will replace the current Self Assessment tax return).
Any of your business-owning clients affected by these changes are likely to face additional costs, such as software subscriptions and training staff.
They will also need to manage a greater administrative burden because of the requirement for quarterly reporting (rather than submitting one annual tax return as they do under the current system).
A financial planner can help by:
- Assessing and explaining compliance requirements – Reviewing gross income from self-employment, property, or both, and ensuring your clients understand their responsibilities under MTD for ITSA.
- Planning for extra costs – Calculating additional costs (such as software subscriptions, accountancy fees, administrative time, and staff training) and building these into business forecasts.
- Providing accurate estimates of tax liabilities throughout the year – Building cashflow forecasts to project income and expenses, ensuring that your clients understand how much tax is likely to be due each quarter. Maintaining sufficient reserves to cover these costs could ensure that compliance doesn’t derail personal or business goals by forcing unplanned borrowing.
- Supporting the quarterly submission process – Keeping clients on track for submitting accurate and timely reports to avoid penalty points and charges.
Read more: 3 practical ways business owners can prepare for Making Tax Digital for Income Tax
2. Optimise pay under higher Dividend Tax rates
The challenge: Individuals pay tax on dividends that exceed the Dividend Allowance, which is £500 in 2025/26.
The government has announced that it will increase Dividend Tax rates by 2% on 6 April 2026. This means that:
- The basic rate will rise from 8.75% to 10.75%
- The higher rate will rise from 33.75% to 35.75%
- The additional rate will remain unchanged at 39.35%.
These increases, combined with frozen Income Tax thresholds, could raise the tax burden for small business owners and contractors.
Moreover, higher Dividend Tax rates could result in a lower personal income for the same amount of profit extracted, reducing the overall efficiency of the classic “low salary, high dividend” model. This is a tax-planning strategy often used by UK limited companies to minimise their tax and National Insurance liabilities.
A financial planner can help by:
- Restructuring how your clients draw an income – Modelling different combinations of salary, pension contributions, bonuses, and dividends to optimise after-tax take-home pay under the new rates.
- Advising on strategies for mitigating Dividend Tax increases – For example, timing dividend payments before the new rates come into effect on 6 April and channelling profits into pensions, which are one of the most tax-efficient vehicles for extracting money from a business.
- Planning spousal income splitting – Transferring shares to a spouse or civil partner allows your client’s business to make full use of both individuals’ Dividend Allowances, effectively doubling the tax-free dividends available. If your client’s partner has a lower income, sharing dividends could further increase after-tax profits by making full use of the partner’s lower tax band.
3. Absorb additional costs that may arise due to the Employment Rights Act 2025
The challenge: The Employment Rights Act 2025 became law on 18 December 2025. It provides greater worker protections, including (but not limited to):
- Enhancing redundancy pay
- Banning zero-hour contracts
- Enabling unfair dismissal from day one of employment
- Removing the lower-earning limit for Statutory Sick Pay.
These changes could increase costs for your business-owning clients through higher payroll expenses, compliance and administrative overheads, and more tribunal claims.
A financial planner can help by:
- Forecasting and planning for cost increases – Creating cashflow projections that show how the Employment Rights Act 2025 could impact your clients’ business and supporting them to put mitigation strategies in place.
- Optimising tax relief and incentives – Ensuring that your clients make full use of available tax deductions for training, compliance technology, and so on.
- Stress-testing business resilience – Scenario planning for events such as costly tribunals and spikes in sickness absence and supporting clients to create a financial safety net, for example, by taking out key-person insurance and building contingency reserves.
Get in touch
If you have business-owning clients who are concerned about how upcoming tax and regulatory changes could affect them, we can help.
To learn more, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is aimed at professional advisers only and does not constitute advice.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
The value of your clients’ investments (and any income from them) can go down as well as up and they may not get back the full amount they invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your clients’ overall attitude to risk and financial circumstances.