UK authorities assure a drive towards greater transparency, digital adaptation, and fiscal efficiency in company and tax administration with regard to the introduced updates to regulations on companies and business activities. However, it seems that the real aim is increased oversight and control.
Key changes include Companies House reforms starting in November 2025, fee increases in February 2026, the phased expansion of Making Tax Digital (MTD) for tax reporting, a reduction in the main Class 4 National Insurance rate for the self-employed to 6%, higher corporation tax rates for many companies, and a halved dividend allowance now at £500, which increases the effective tax burden on profit extraction.
Companies House: November 2025
From 18 November 2025, the Economic Crime and Corporate Transparency Act introduces mandatory identity verification for all directors and Persons with Significant Control (PSCs) upon company incorporation or appointment. New directors must verify their identity immediately, while existing directors and PSCs have a 12-month transition period synchronised with their next confirmation statement. Companies will no longer be required to maintain registers of directors, directors’ residential addresses, secretaries, or PSCs, with those details held in the central public register. However, the register of members (shareholders) must still be kept and made available for inspection by the company. Updated size thresholds for micro-, small, and medium-sized entities—raising turnover limits to around £1 million, £15 million, and £54 million—should exempt more firms from audits and reduce reporting obligations.
Fees from February 2026
To fund the additional costs of supervision, Companies House will raise key fees from 1 February 2026. The digital incorporation fee doubles from £50 to £100, and the confirmation statement fee rises from £34 to £50, increasing fixed costs for startups and small companies. Traditional (paper) procedures will face even steeper increases. Meanwhile, the fee for a voluntary strike-off application drops to £13. The relative impact of these changes will be most keenly felt by micro- and small companies with limited budgets.
Making Tax Digital and Tax Changes
MTD for Income Tax starts from 6 April 2026 for sole traders and those earning rental income, with qualifying income over £50,000, expanding to £30,000 in 2027 and potentially to £20,000 later. Affected taxpayers must keep digital records and submit quarterly updates via compatible software, ending with an annual declaration instead of a traditional tax return. In parallel, the main Class 4 NIC rate on self-employed profits has fallen to 6% from April 2025 (the additional rate remains at 2%).
Limited Companies vs Sole Traders
Taken together, these measures create the impression of incentives towards self-employment for the smallest firms. Limited companies face new verification requirements, higher registration fees, and higher corporation tax rates, which range from 19% for small profits to a main rate of 25%, with an effective marginal rate of 26.5% in the taper band above £50,000 but below £250,000. On top of that comes dividend tax.
Dividend tax rates remain at 8.75%, 33.75%, and 39.35%, but the allowance is just £500, bringing more distributions into tax—a significant change from the pre-2016 regime, when the automatic 10% tax credit often left basic rate taxpayers with no further dividend liability.
By contrast, the lower Class 4 NIC rate eases the burden for sole traders, while MTD’s quarterly reporting enhances HMRC’s real-time oversight without needing to navigate the structural opacity of companies.
The reduction in the dividend allowance further undermines the previous tax advantages associated with director-shareholder models. Although the political narrative emphasises transparency and trust, the practical outcome is higher costs for companies and a subtle push towards more real-time controllable self-employment.
In summary, both company owners and sole traders (self-employed) should consider whether their current legal structure remains suitable. Those for whom limited liability towards third parties, no need for multiple in-year transaction reports to the tax authority, and legal separation between the business and owner are important should continue operating through a company. Identity verification is merely a cosmetic change compared to long-standing anti-money laundering regulations.
Individuals who prefer simplicity in running a business, have no objection to real-time transaction reporting to the tax authority (multiple times a year), are not afraid of third-party financial claims, and need to withdraw money from the business on an ongoing basis should stick with self-employment.
Finally, it is possible to combine both options to benefit from the advantages of each business form. For more information, contact us.