Some key legal changes affecting SMEs in 2026

Rather than a single headline reform, 2026 brings together a series of changes that directly impact business exits, consumer-facing trading practices and day-to-day compliance.

For business owners, these developments could influence how much value they ultimately extract from their business, how they price and market their services and how they manage risk.

This article highlights some of the most important legal developments coming into effect in 2026 and what small and medium-sized enterprises (SMEs) should be doing now, to prepare.

1. Capital Gains Tax Changes on M&A Transactions (BADR and CGT relief on EOT sales)

The impact of two successive budgetary reforms to Capital Gains Tax Changes will be felt in 2026.

One is the continued reform of Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief.

The other is the reduction of the Capital Gains Tax relief on qualifying transfers to employee ownership trusts (EOTs), which became effective towards the end of 2025.

Business Asset Disposal Relief  (BADR)

In short, Business Asset Disposal Relief allows qualifying business owners to pay a reduced rate of Capital Gains Tax on the sale of their business or shares. The 2024 budget spelt an end to the previous 10% rate sellers could enjoy on the first £1M of sale proceeds. The rate rose 14% from 6 April 2025 and will rise again to 18% from 6 April 2026.

While BADR will still offer a saving compared to the standard higher-rate CGT (currently 24%), the advantage is now significantly reduced. This follows the successive reduction of a once cornerstone fiscal driver rewarding entrepreneurialism which was, at its height, a 10% saving on the first £10M of qualifying sale proceeds.

Capital Gains Tax Changes (CGT) on Employee Ownership Trusts (EOTs)

Similarly, short-term approaches from the current administration have weakened the tax relief for transitions to EOT ownership.

Despite the clear tax revenue raising benefits for an employee-owned business (once the seller is fully paid out), the key tax incentive to get there, being a 100% CGT free sale by the owners, has been reduced to 50%.

However, for the right business, it remains an enticing saving when weighing up exit options.

Why this matters

For many SME founders, these reliefs have been an important consideration in exit planning. The increase in CGT (via the reduction of valuable reliefs) means:

• A higher tax cost on exit than many owners had originally anticipated
• Reduced net proceeds from a sale
• Greater importance on timing and structuring transactions

Businesses on the verge of an imminent sale may need to move fast. For those seeking to exit in the next two to three years, it is still worth reviewing the options available early, along with assessing possible structures and BADR eligibility to ensure that they are exit-ready and not under time pressure.

2. Consumer law reform: tougher rules on pricing and advertising

For SMEs that sell to consumers, whether as their core business or alongside B2B activity, the major changes under the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) are already reshaping the landscape.

Changes already in force

By way of reminder, from 6 April 2025, a new consumer protection regime came into effect, replacing much of the previous framework. Most notably:

• Stronger rules on misleading actions and omissions
• A specific prohibition on unlawful “drip pricing”
• Enhanced rules around fake or misleading online reviews
• Direct enforcement powers for the Competition and Markets Authority (CMA), including the ability to impose fines without going to court

Drip pricing explained

Drip pricing is where an initial price is advertised, but unavoidable additional charges are only revealed later in the purchasing process (e.g., at checkout).

Under the new regime, all unavoidable charges must be included in the headline price shown to consumers, optional extras may still be shown separately but must be clearly identified as optional and failure to comply is automatically treated as an unfair commercial practice.

This has immediate relevance for businesses in hospitality, leisure, events, travel, digital services and subscription-based models.

Advertising and marketing risk

The reforms also affect:

• “Was/now” pricing and discount claims
• Urgency messaging and limited time offers
• How consumer reviews are collected, moderated and displayed

Many SMEs rely on website templates, third-party platforms or automated sales funnels. However, responsibility for compliance sits firmly with the business itself.

3. Subscription contracts and cancellation rights: major changes in 2026

One of the most impactful consumer law changes arrives in spring 2026, when new rules governing subscription and auto-renewing contracts are expected to come fully into force.

What will change?

Businesses offering subscriptions or recurring payment contracts will be required to:

• Provide clearer pre-contract information about renewal terms
• Send mandatory reminder notices before renewals
• Make cancellation straightforward and accessible
• Avoid design features that make cancellation deliberately difficult

These rules will affect far more than tech or SaaS businesses. They apply equally to gyms and leisure operators, serviced accommodation and care providers, maintenance and service contracts and food, drink and consumer goods subscriptions.

Practical implications

Compliance will often require changes to consumer terms and conditions, website and app user journeys, customer service processes and marketing language around “free trials” and renewals.

For many SMEs, this will be as much an operational change as a legal one.

4. Corporate compliance: rising expectations will continue into 2026

Alongside tax and consumer reforms, corporate compliance standards are increasing not least as a result of the reforms under the Economic Crime and Corporate Transparency Act 2023, which mean that by the end of 2026:

• All directors, persons with significant control and company filers must be identity-verified
• Companies House will be actively scrutinising filings
• Errors or inconsistencies are more likely to be queried or rejected

For growing SMEs, particularly those with overseas directors or complex ownership structures, this increases the importance of good corporate housekeeping and forward planning, especially if you are considering a future exit and want to reduce the scope for due diligence queries on corporate compliance.

5. What does this mean for SMEs and their advisers?

Taken together, the 2026 changes highlight several clear themes:

• Timing is as important (if not more) than ever, particularly for exits and tax planning
• Consumer-facing behaviours are an increased regulatory risk, impacting marketing practices
• Operational processes (such as pricing, onboarding and renewals) are increasingly subject to legal scrutiny
• Early advice protects value, whether that value sits in an exit price, customer trust or regulatory certainty

For professional referrers, these developments reinforce the importance of early signposting and joined-up advice between legal, tax and commercial advisers.

In summary

2026 is unlikely to be remembered for a single headline-grabbing reform. Instead, it is the year when a number of incremental changes coalesce with clear and practical commercial consequences for SMEs.

For business owners considering an exit, the increase in the BADR rate from April 2026 sharpens the focus on timing and transaction structure. At the same time, 2026 is likely to be a defining year for Employee Ownership Trust (EOT) planning, following the reduction in the CGT relief available on EOT disposals from 100% to 50%.

While EOTs will remain an attractive succession option, the change significantly alters the financial calculus and will require earlier, more detailed consideration of alternative exit routes and funding structures.

For consumer-facing businesses, the strengthened enforcement regime under the DMCC Act means that pricing transparency, advertising practices and cancellation processes carry real regulatory and financial risk. Alongside this, it is very clear that rising expectations around corporate compliance and transparency are here to stay.

How Morr & Co can help?

If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Corporate & Commercial team on 0333 038 9100 or email info@morrlaw.com and a member of our expert team will get back to you.

Disclaimer
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.