The closure of the government’s free joint filing service, mandatory identity checks at Companies House, and a rising penalty regime are combining to increase the administrative and financial burden on small and micro companies; while Making Tax Digital begins its phased expansion to sole traders at the same time.
For small limited companies that have managed their own compliance without an accountant, the rules have quietly become more demanding, and more expensive, over the past year. Several overlapping changes are taking effect in 2025 and 2026, and the combined effect on the smallest businesses is significant.
The end of free filing
The most immediate change is the closure of the Company Accounts and Tax Online portal, commonly called CATO. From 31 March 2026, HMRC and Companies House will switch off the free joint online service for filing company accounts and Corporation Tax returns. After that date, it will not be possible to use it or access historic returns through it.
CATO was designed to help smaller businesses with straightforward tax obligations. Single UK companies with a turnover of no more than £632,000 have been eligible for the service.
From 1 April 2026, if you run a company, you will need commercial software to file your Corporation Tax return with HMRC. There will be no free HMRC web form for companies, except in very narrow “reasonable excuse” cases where paper filing is allowed.
The burden falls unevenly. If you already pay an accountant to handle your company accounts and tax, you are unlikely to notice much difference. Most firms already file using commercial software and will simply adjust behind the scenes. For one-person companies and micro-entities that have been self-filing for free, the change is more tangible; what was once a relatively contained annual compliance task could evolve into a more complex, ongoing requirement demanding greater time, attention, and technical knowledge that entrepreneurial business owners simply do not have to spare.
The required software must be capable of filing a CT600, a corporation tax computation, and company accounts. While this software comes with a monthly charge, it provides improved validation, tax support, and filing reminders.
Companies House has been working towards software-only accounts filing from April 2027, although this may yet be scaled back following concerns raised by small business groups about cost and data disclosure. The direction of travel, however, is clear.
HMRC’s official position is that the CATO service does not meet modern digital standards, or recent changes to UK company law, and that commercial software offers small businesses a better service. Critics point out that this argument sidesteps the question of cost. Enterprise Nation has argued that HMRC should either keep a simple free online filing route for micro-entities or require recognised software providers to offer a genuinely free or token-cost “micro” tier, funded or mandated by government; so that a one-person company with a basic return would not be paying the same as a much larger business.
One practical consequence that many businesses may not have considered: it will not be possible to access previous returns after the joint filing service closes, so HMRC recommends downloading and saving at least the last three years of filed returns before the deadline.
Identity checks and a heavier penalty regime
The filing changes arrive alongside a separate Companies House reform. From 18 November 2025, anyone appointed as a company director or a person with significant control is required to verify their identity before their appointment can be confirmed, applying to all new appointments made after the rules come into force. Companies House began a twelve-month transition period in which existing directors and persons with significant control must also complete identity verification, linked to the filing of the annual confirmation statement.
From spring 2026 onwards, anyone who files documents on behalf of a company will need to be verified as well; this applies to company officers and to third parties such as accountants or administrators. Filing will only be permitted if the individual is verified or if the filing is made through an approved intermediary.
At the same time, the cost of getting things wrong has risen. HMRC late payment interest has risen from Bank Rate plus 2.5% to Bank Rate plus 4% from 6 April 2025. Late payment penalties have also increased from 2% to 3% at both the 15 and 30 day triggers, and from 4% to 10% after 31 days.
Making Tax Digital: the broader picture
Running parallel to all of this is the government’s Making Tax Digital programme, which is now moving beyond VAT. MTD for Income Tax Self Assessment will be introduced in two phases for sole traders and landlords; from April 2026 for those with qualifying income over £50,000, and from April 2027 for those with qualifying income over £30,000. From April 2028, the threshold is expected to fall further to £20,000. This affects unincorporated businesses rather than limited companies directly; MTD for Corporation Tax, which will eventually apply to limited companies, is on a separate and later timeline.
The practical change under MTD for Income Tax is considerable. Instead of submitting one Self Assessment tax return per year, those in scope must keep digital records and send updates to HMRC throughout the year using compatible software. Under MTD, sole traders must record income and expenses digitally at transaction level, and submit quarterly updates to HMRC. A final declaration then replaces the traditional annual return.
HMRC estimates around 4.2 million self-employed individuals and landlords will eventually fall within scope. For the first year, there is a partial concession: HMRC will not apply penalty points for late quarterly updates for the 2026 to 2027 tax year. Penalties will still apply for late tax returns or if tax is paid after the due date.
A mixed picture
Not every change is negative for smaller businesses. The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 increase the monetary size thresholds for micro, small and medium-sized entities for financial years starting on or after 6 April 2025; with approximately 113,000 companies moving from small to micro, 14,000 from medium to small, and 6,000 from large to medium. Companies reclassified downward gain access to reduced disclosure requirements and, in many cases, audit exemptions; a genuine reduction in compliance costs for those affected.
The government has also paused the planned requirement for small and micro-entities to file full profit and loss accounts and to use software-only filing by default, which were due to take effect from April 2027, providing smaller companies with temporary relief from additional disclosure requirements.
The overall picture, though, is of a compliance environment that is becoming more technically demanding and less forgiving of informality; particularly for the smallest operators who have historically managed their obligations without professional help. The free, simple route is closing, and the replacement requires either paid software, a paid accountant, or both.