There’s been a lot of news over the past month so we’ve gathered together some interesting stories you might have missed together in one place.
You can also catch up on all the other business and insolvency news stories from the week right here.
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MTD is finally here
The 2026 Spring Statement confirmed the 6 April 2026 start date for Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), putting an end to any hopes of further delays.
The implementation will proceed with fixed thresholds, beginning with self-employed individuals and landlords earning over £50,000 in qualifying gross income, dropping to £30,000 in April 2027 and £20,000 in 2028.
The Chancellor maintained an extended freeze on tax thresholds through to April 2028, meaning inflation-driven wage growth will push more clients into higher tax brackets. This shift presents accountants with an opportunity to pivot from pure compliance to proactive wealth protection and advisory roles.
Additionally, with dividend taxes rising, the time to discuss salary versus dividend structures is right now.
HMRC has introduced a “soft landing” regarding its points-based penalty system for the first year of MTD ITSA. During the 2026-27 period, penalty points will not be applied to late quarterly updates, though standard penalties will still apply to late payments and the final declaration.
Accountants are advised to use this period to help clients build habits around quarterly reporting without the immediate threat of £200 fines.
Transitioning clients to digital quarterly submissions represents a massive operational challenge for accounting firms, leading many to categorize their clients into groups such as “Digital Ready,” “Digital Reluctant,” and “Digitally Excluded”.
Begin the process of applying for digital exemptions as soon as possible and audit client lists immediately to avoid bottlenecks before the first quarterly deadline in August 2026.
Late Payment Crackdown Announced by Govt
The government has announced an extensive crackdown on late payments to SMEs, with new rules scheduled to come into effect no earlier than the 2027-28 financial year.
The legislation will impose a mandatory 60-day maximum limit on invoice payment terms for large businesses when dealing with smaller suppliers.
Under the proposed shakeup, late payments will automatically attract interest at 8% above the Bank of England’s base rate. This new statutory interest requirement must be included in all commercial contracts, and businesses that face delays will also be entitled to compensation.
This policy is aimed directly at large enterprises, specifically those exceeding £54 million in turnover, £27 million on their balance sheet, or having over 250 employees.
The Small Business Commissioner will be granted expanded powers to investigate poor payment practices, adjudicate disputes, and issue substantial fines worth “tens of millions” to companies that persistently fail to comply.
Additionally, company boards and audit committees will be held accountable and required to publish commentary explaining any poor payment performance in their annual reports.
This legislation marks the first major legal intervention regarding commercial debt since 1998 and is estimated to cost large businesses £143.28 million annually.
While the rules will strictly limit payment terms, some exemptions will be permitted, such as when both parties are large corporations, when the buyer is the smaller party, or for imported and exported goods and services.
HMRC to Tighten Small Business Close Company Rules
HMRC has launched a consultation on strict new proposals designed to compel “close companies”—businesses controlled by five or fewer individuals—to report detailed information regarding transactions with their participants.
This initiative aims to address a £14.7 billion small business tax gap, which currently represents 40% of small business corporation tax liabilities.
The proposed rules would require close companies to disclose all cash withdrawals, loans, dividends, asset transfers, and other distributions involving participants. The reporting requirements are particularly focused on director’s loan accounts and instances where loans to participants are repaid, released, or written off.
Small business advocates, including the Federation of Small Businesses, have expressed dismay, warning that these reporting requirements will increase red tape, stress, and compliance costs for owners. Critics argue that the rules are extremely burdensome and that dealing with HMRC often turns into a nightmare for small firms without dedicated tax departments.
HMRC maintains that close companies frequently blur the lines between personal and corporate finances, allowing for aggressive tax avoidance. While acknowledging that most family-owned businesses are compliant, HMRC insists the deeper insight provided by these granular reporting rules is necessary to ensure proper reliefs are paid and to curb evasion. The consultation on these changes runs until 10 June 2026.
Three Forces That Will Shape Accountancy in 2026 and Beyond
The UK accounting sector is facing a reporting cliff this year, driven by a combination of regulatory changes and rapid technological advancement. Mid-market firms must confront major updates to UK GAAP, specifically FRS 102, which aligns with international standards for revenue recognition and leases.
These changes are putting previous off-balance sheet leases onto the balance sheet and altering the timeline for booking upfront income.
A second major force is the Financial Reporting Council’s (FRC) new preventative supervision approach, which intensely focuses on Systems of Quality Management. The FRC is shifting its attention away from merely reviewing final files toward scrutinizing the culture and technological infrastructure that produce those files.
The third force is a surge in mergers and acquisitions driven by record levels of private equity dry powder, estimated globally between $1.7 and $3.7 trillion dollars. In this environment, accounting firms and businesses equipped with clean data and resilient AI models are securing premium valuations, while those relying on manual processes are suffering reduced valuation multiples due to anticipated post-acquisition transformation costs.
Finally, routine data entry is increasingly being handled by AI, forcing the role of the accountant to pivot from basic bookkeeping to strategic advisory. Successful professionals are now utilizing custom AI models as sophisticated co-pilots to accelerate tasks like M&A research, allowing human accountants to focus their value on interpreting impacts and providing high-level business insights.
Companies House Security Flaw
A severe security vulnerability on the Companies House WebFiling system has exposed the confidential details of over five million registered UK companies. The flaw enabled logged-in users to access and alter the private information of other companies—including directors’ names, addresses, emails, and dates of birth—and potentially upload fraudulent financial accounts.
The glitch was astonishingly simple to exploit, requiring no advanced hacking skills. Users could enter another company’s registration number and bypass the required authentication code simply by pressing their browser’s “back” button multiple times, which granted them full access to the target company’s private dashboard.
Following the discovery of the vulnerability by operations director John Hewitt and subsequent demonstrations by tax campaigner Dan Neidle, Companies House was forced to suspend its online filing services for several days in March 2026 to resolve the issue. The organization reported itself to the Information Commissioner’s Office (ICO) and the National Cyber Security Centre (NCSC) to comply with GDPR regulations.
The vulnerability was reportedly introduced during a system update in October 2025 related to the UK’s One Login digital identity platform. This platform has been surrounded by controversy, including whistleblower allegations of hundreds of thousands of critical system vulnerabilities and the unauthorized outsourcing of development work to Romania.
Corporate Civil Enforcement
The UK Government has initiated a consultation aimed at reforming the corporate civil enforcement regime, representing the most significant shift in this area in almost forty years. The proposed changes outline 11 specific measures designed to fundamentally reshape how the Insolvency Service investigates and addresses corporate misconduct.
The current civil enforcement framework, which deals with director disqualifications and public interest company winding-up petitions, is deemed insufficiently flexible to combat modern economic crimes and sophisticated business structures. The new proposals seek to modernize these tools to offer a more proportionate and effective response to corporate abuse.
Recent legislation, such as the Economic Crime and Corporate Transparency Act 2023, has already broadened the Insolvency Service’s responsibilities to include proactive interventions with live companies. These new reforms are intended to streamline enforcement, increase deterrence against unethical directors, and cut existing delays in the system.
Ultimately, the changes are expected to better protect creditors, uphold market integrity, and align the UK’s enforcement regime with international best practices established by the World Bank and the UN. The Institute of Chartered Accountants of Scotland has announced it will thoroughly analyze the proposals and their implications.
Kings Speech Announced for May 13
The third King’s Speech by King Charles has been scheduled for 13 May, coinciding with the state opening of parliament. This event will outline the government’s legislative agenda for the next 12 months.
The speech will provide crucial insight into the administration’s policy direction by presenting proposals for new laws and updating the status of ongoing Bills.
Notably, it has been confirmed that the previously anticipated Audit Reform Bill has been abandoned.
Moving forward, the government’s legislative strategy in this area will focus on reducing bureaucratic red tape rather than imposing new constraints on businesses.
AI Isn’t Replacing Accountants… It’s Creating More Work
Research indicates that the use of general-purpose artificial intelligence tools like ChatGPT by business owners is creating significant problems for the UK accounting industry. Over 40% of accounting professionals are now losing up to 10 hours a week fixing “AI slop”—flawed tax and expense advice generated by chatbots lacking specialized financial knowledge.
The financial consequences for businesses relying on unqualified AI advice are severe. Fifty percent of surveyed accountants report that clients have suffered direct losses resulting from incorrect AI guidance, manifesting as overpaid taxes, missed allowances, and HMRC penalties. With Making Tax Digital approaching, a third of professionals fear that public AI reliance could trigger business insolvencies in 2026.
Concurrently, the Financial Reporting Council (FRC) has released guidance stressing that accounting firms are strictly accountable for any errors produced by AI used in auditing processes. The FRC warned that AI hallucinations and data distortions pose genuine risks to audit quality, and the blame cannot be shifted to the software box or developers.
Despite these challenges, major accounting firms are actively investing billions into AI integration to automate functions and cut costs. However, regulators and industry leaders maintain that human oversight and professional skepticism are not optional, and the overwhelming majority of accountants now support regulations restricting public AI from giving tax advice.
EU to Harmonise Insolvency Rules
The European Union is advancing legislation designed to harmonize fundamental insolvency regulations across all of its member states. This move is intended to reduce the complexity of navigating different national laws and establish a cohesive cross-border framework.
A primary goal of the harmonization is to boost the EU’s global competitiveness by making its business environment significantly more appealing to cross-border investors. The rules are also structured to maximize the asset value that creditors can reclaim from insolvent businesses while increasing the overall efficiency of bankruptcy proceedings.
The directive introduces comprehensive common rules, including provisions for tracing assets across EU bank registers, challenging illegitimate asset removal, and utilizing “pre-pack” proceedings for swift business sales. Furthermore, directors will be legally bound to file for insolvency within three months of financial distress, and the rights of individual creditors will be strengthened.
To promote legal clarity, every EU member country will be required to publish accessible factsheets regarding its insolvency laws on the EU’s e-Justice portal. Member states have been given until December 2028 to integrate this new directive into their national legal systems.
Marshmallow VAT – How Do You Eat Yours?
Innovative Bites Limited has been engaged in a lengthy legal battle with HMRC over whether its “Mega Marshmallows” should be standard rated or zero rated for VAT purposes. While HMRC initially assessed the company for £472,928, claiming the product was standard-rated confectionery, the first tier tribunal (FTT) and the upper tribunal (UT) ruled the marshmallows were zero rated because their size implied they were meant to be roasted rather than eaten with fingers.
VAT legislation dictates that items seen as confectionery, including sweetened food normally eaten with fingers, are typically standard rated. Conversely, items considered ingredients for cooking are zero rated. Because of these classifications, the legal proceedings centered heavily on subjective behavioral factors, such as product marketing, supermarket shelf placement, and the manner in which the product is consumed.
Following an intervention by the Court of Appeal, the FTT was tasked with specifically determining if the marshmallows were “normally eaten with the fingers”. The tribunal evaluated four consumption methods: roasted and eaten off a skewer, roasted and eaten with fingers, eaten as a “s’more” ingredient, or eaten directly from the bag with fingers.
Lacking empirical data, the tribunal devised an elegant mathematical formula, concluding that non-finger methods were more probable than finger methods.
Therefore, because the product is primarily not eaten with fingers and falls outside the definition of standard confectionery, the final ruling established that the giant marshmallows remain zero rated, offering food manufacturers insight into how product consumption methods can influence VAT status.
A sweet outcome indeed.