Looking ahead: key legal changes for business owners in 2026

The Economic Crime and Corporate Transparency Act 2023 came into force on 18 November 2025 and requires all new and existing company directors, persons of significant control and those delivering documents to Companies House to verify their identity. 

From this date, directors were required to verify their identify on either their appointment as a director of an existing company, or on their appointment as a director of a new company. However, directors who had already been appointed prior to 18 November 2025 (whether on incorporation of the company or afterwards) have not yet necessarily had to verify their identity. 

For all of these existing directors, they must verify their identity with Companies House prior to the Company’s annual confirmation statement being filed. The company must then confirm that the director’s identity has been verified at the same time as it delivers its first confirmation statement after 18 November 2025. 

This is therefore likely to affect many companies completing their annual confirmation statements in 2026. 

How to prepare:

If you’re an existing director and have not yet verified your identity, verify your identity with Companies House online. You will then be given a personal identification code, which can be included as part of the company’s annual confirmation statement filing in 2026 to confirm your identity has been verified. This will need to be included when filing the confirmation statement for each company you are a director of.   

From 6 April 2026, business owners who qualify for BADR will pay a higher rate of tax when disposing of their company shares or business assets.

Currently, BADR means that the capital gains tax payable on a qualifying disposal is 14%. However, from 6 April 2026, tax will be chargeable on the gain at a rate of 18%. 

Generally speaking, you will qualify for BADR if you are an individual and meet the following criteria:

If you are disposing of company shares:

• the company is a trading company (or the holding company of a trading group)
• you hold at least 5% of the company's ordinary share capital, which entitles you to at least: (a) 5% of the voting rights; (b) 5% of the distributable profits; and (c) 5% of the company's assets available for distribution to shareholders on a winding-up; and 
• you are an officer or employee (full or part time) of the company or, if the company is a member of a trading group, of one or more companies which are members of the trading group

If you are disposing of business assets (as a sole trader or partner):

• if you are disposing of the whole or part of your business, if you have owned the business for a period of at least two years ending with the date of the disposal; or 
• if you are ceasing to run your business, if you have owned the business for a period of at least two years ending with the date of the disposal, and the business ceased to be carried on within a period of three years ending with the date of the disposal 

If you qualify for BADR, you will pay the BADR rate of tax (either 14% or 18%, depending on when the disposal occurs) irrespective of whether you are a basic, higher or additional rate tax payer. However, there is a lifetime cap on the amount of gains which can qualify for BADR of £1 million for disposals occurring on or after 11 March 2020 (and certain other disposals on or after 6 April 2019). 

How to prepare:

If you are planning on disposing of your business in 2026, seek advice on whether you will qualify for BADR. 

Companies seeking to incentivise employees to work towards growth and/or a future sale of the company may wish to consider creating an EMI scheme which will allow the company to grant tax advantaged share options to employees. 

From 1 April 2026, the rules which govern which companies are able to create EMI schemes are expanding, and as a result, more companies will qualify and be able to benefit. 

Currently, a company can create an EMI scheme and grant EMI options over its shares as long as:

• it is independent of other companies
• any subsidiaries it has are ‘qualifying subsidiaries’
• its gross assets do not exceed £30 million at the time of grant 
• it has less than the equivalent of 250 full-time employees at the time of grant 
• it’s a trading company, or the parent company of a trading group (although note certain trading activities will not qualify); and
• it has a UK permanent establishment (or if it’s a parent company, a group member with a qualifying trade)

Similarly, a company cannot grant EMI options over more than £3 million worth of shares at any one time, and all EMI options granted must be capable of being exercised within 10 years of the date of the grant. 

However, from April 2026, the following rules are changing:

• the gross asset test is increasing from £30 million to £120 million
• the employee limit is increasing from the equivalent of 250 full-time employees to 500 employees
• the total value of EMI options that can be granted is increasing from £3 million to £6 million; and 
• the period for exercise is increasing from 10 years to 15 years

How to prepare:

If you would like to create an EMI scheme, please get in touch and we can advise whether your company is likely to qualify and provide guidance on next steps. 

The Employment Rights Act 2025 received royal assent and became law on 18 December 2025 following significant debate in parliament. Whilst many of the changes (including the reduction of the qualifying period for claiming unfair dismissal from two years to six months) are not expected to take effect until January 2027, some of the key changes which are anticipated to take effect later this year are as follows:

Expected in April 2026:

• the maximum protective award available for failing to collectively consult on redundancies is to be doubled
• disclosures around sexual harassment are to become protected disclosures for whistleblowing purposes
• paternity leave and unpaid parental leave rights will become available from day one of employment
• there will be the ability to take paternity leave following shared parental leave
• the creation of the Fair Work Agency for the state enforcement of employment rights; and 
• the abolishment of waiting period and changes to lower earnings’ limit for statutory sick pay

Expected in October 2026:

• updated requirement to take “all reasonable steps” to prevent sexual harassment
• changes to employer liability for third-party harassment; and 
• increased legal requirements in relation to the payment and allocation of tips and gratuities to hospitality workers

Please note however, timelines for the proposed changes may be amended by the government at any time, and most of the proposals are still to be the subject of further consultation before being implemented. 

How to prepare:

Keep an eye on upcoming legal changes and seek employment law advice to ensure all employment policies and procedures are updated accordingly. There are also proposed changes in relation to trade unions and strike action. If you think you may be affected, take specialist employment law advice.

Undoubtedly, the legal landscape for business owners is set to shift in 2026, and it it’s important to be prepared. If you would like any further advice on the above, please do not hesitate to get in touch.