The Budget: the tax changes make headlines — but what about the legal traps?

The Legal Brief | Issue No. 6 | October 2026 | Special Budget Edition — IFA Special Edition No. 1

An important briefing for members of the Institute of Financial Accountants and their business clients

The Budget: the tax changes make headlines — but what about the legal traps?

HMRC, directors' liabilities, business sales and company money. The Chancellor has spoken. Now accountants and their clients need to look beyond the figures.

The Chancellor has delivered the Budget. The newspapers are full of tax rates, allowances and predictions about winners and losers.

But there's another story.

One that could be every bit as important to Britain's small businesses.

What happens when a tax change becomes a legal problem?

What happens when a director cannot pay HMRC? When a business owner wants to sell the company? Or when money has been taken out of a company without proper legal authority?

For accountants, these are familiar situations.

And they illustrate why accounting and legal advice so often need to work together.

At Talk Legal, we believe the Budget should be examined not simply for what it costs businesses, but for the legal consequences of the decisions business owners make in response.

Here are six areas worth watching.

1. HMRC wants its money. But what if your client can't pay?

Imagine this.

Your client runs a wholesale business turning over £3 million annually.

Trade has been difficult. Customers are paying late. The company owes HMRC £180,000 in VAT and PAYE.

The director wants to negotiate a payment arrangement.

Perfectly understandable.

But there's a problem.

The company may be approaching insolvency.

And at that point, the legal responsibilities of its directors become critically important.

Directors ordinarily owe duties to the company. But where insolvency is sufficiently probable, the interests of creditors become increasingly significant.

Continuing to trade is not automatically unlawful.

Nor does owing HMRC money automatically make a director personally responsible for the debt.

But directors who ignore the financial position, favour certain creditors improperly or allow losses to increase without a reasonable prospect of avoiding insolvent liquidation or administration may face serious consequences.

A Time to Pay arrangement can help, but it isn't a substitute for examining the company's overall financial position.

The legal warning: If your client's company cannot meet its liabilities, don't look only at the tax debt. Consider whether urgent insolvency advice is needed.

The accountant may identify the financial problem.

A legal review may help identify the directors' exposure and the available options.

2. Selling your business? The £500,000 shock

Here's one of the Budget's most significant announcements for owner-managed companies.

From 6 April 2027, the lifetime limit for Business Asset Disposal Relief is due to fall from £1 million to £500,000.

That could materially affect the tax position of entrepreneurs selling qualifying businesses.

But let's look at the legal side.

Suppose your client owns a successful engineering company.

They've spent 25 years building it.

Now they're negotiating a sale.

The buyer offers £1.5 million.

The accountant examines the tax consequences.

But what about the sale agreement?

What happens if the buyer pays only part of the purchase price immediately?

What if the balance depends on future profits?

What if the seller gives warranties about the company's finances, customers or liabilities?

And what if the buyer later alleges those warranties were false?

A business sale isn't finished simply because the price has been agreed.

The legal documentation can determine whether the seller receives the money, retains unexpected liabilities or becomes involved in expensive litigation.

And if a client is considering accelerating a transaction before a tax change, the commercial and legal risks of doing so must be considered alongside the tax position.

The legal warning: Never allow the desire to secure tax relief to obscure the importance of a properly negotiated sale agreement.

3. Directors taking money out of their companies — a dangerous assumption

Here's a familiar situation.

A director owns all the shares in a limited company.

There's money in the bank.

He transfers £60,000 to his personal account.

"It's my company," he says. "It's my money."

Not necessarily.

A limited company is a separate legal person.

Money belonging to the company does not automatically belong to its shareholders or directors.

A payment may be salary, a dividend, repayment of a genuine debt or a director's loan.

Each has different legal and tax consequences.

The Budget's work on modernising company distributions provides another reason to examine these arrangements carefully.

Under existing company law, dividends must generally be paid from profits available for distribution.

If a company pays unlawful dividends, there may be consequences for both directors and shareholders.

And if the company subsequently becomes insolvent, transactions previously regarded as routine may come under close scrutiny.

The legal warning: Proper accounts are essential. But so are proper decisions, documentation and compliance with company law.

The fact that a director owns 100% of a company does not remove those obligations.

4. Online sellers — who pays when VAT goes wrong?

Thousands of small businesses sell through online marketplaces.

For many, the platform is effectively their shop window.

The Budget includes proposals extending online marketplace VAT liability.

But changes in tax collection responsibilities can also raise commercial questions.

Who is responsible for collecting the correct amount?

What does the marketplace agreement say?

Who bears the financial consequences if a transaction is incorrectly classified?

And what happens when the platform deducts money that the seller believes it was never entitled to retain?

The legal warning: Online sellers should review their marketplace contracts and payment arrangements as the new rules develop.

Tax compliance and contractual rights are separate issues.

A business may comply with its tax obligations yet still find itself in a commercial dispute over payments, deductions or responsibilities.

5. HMRC says the return is wrong. Must your client accept it?

The Budget also contains measures concerning the modernisation of tax error correction and HMRC's compliance processes.

For accountants, that raises an important practical question.

What should happen when HMRC challenges a client's tax position?

The answer is not simply to pay whatever is demanded.

Nor is it sensible to reject every challenge.

The correct approach depends on the legal basis of HMRC's decision, the evidence and the applicable statutory procedures.

There may be opportunities to provide further information, seek a statutory review or appeal to the First-tier Tribunal (Tax Chamber).

But time limits can be strict.

A missed deadline can substantially damage a client's position.

And the distinction between an enquiry, a proposed correction, a formal assessment and an appealable decision can be crucial.

The legal warning: Before advising a client to accept a disputed liability, establish exactly what HMRC has decided, under which statutory power and what rights of challenge are available.

The accountant's knowledge of the figures and a legal examination of the statutory powers can be a powerful combination.

6. When the accountant spots the problem first

This may be the most important point of all.

Accountants often know that a business is in difficulty long before anybody else.

They see the declining margins.

They see the growing liabilities.

They see the unpaid VAT, the increasing director's loan account and the customers who are no longer paying.

They may also see something the client has not yet appreciated.

The problem is no longer simply financial. It has become legal.

Consider a company with four shareholders.

Two want to inject more money. Two refuse.

The company needs immediate funding.

Can the directors issue more shares? Do existing shareholders have pre-emption rights? What do the articles and shareholders' agreement provide?

Or consider a business struggling with a major supplier.

The supplier threatens to terminate a contract that accounts for 40% of turnover.

The accountant can calculate the financial consequences.

But the legal question is whether the supplier is entitled to terminate at all.

These are precisely the situations in which early cooperation between accountants and legal advisers can make a real difference.

The Talk Legal view — accountants and legal advisers should work together

At Talk Legal, we regard accountants as essential professional partners.

They understand their clients' businesses, often over many years.

They know the financial background and frequently have the confidence of the business owner.

We don't seek to replace that relationship.

We want to complement it.

Where an accountant identifies a potential legal problem, Talk Legal can examine the issues and help the client understand the options.

That may involve a commercial contract, shareholder dispute, debt recovery problem, company law question or threatened litigation.

Sometimes the solution is a carefully written letter.

Sometimes it's negotiation.

Sometimes specialist solicitors, counsel or insolvency practitioners are needed.

And sometimes the most valuable advice is to avoid litigation altogether.

Our approach is simple.

We talk to people. Not bots.

We listen, ask questions and examine the important documents.

We then provide an initial assessment, often in writing and completely free.

Where further work is appropriate, we explain what is involved and agree the fee in writing before proceeding.

A message to IFA members

Your client has a financial problem. But could there also be a legal problem?

If so, let's talk.

You remain the client's accountant and trusted financial adviser.

We can provide an independent legal perspective and work alongside you where appropriate.

The earlier a legal issue is identified, the greater the opportunity to prevent it becoming an expensive dispute.

Talk Legal — serious about your case. Determined to win.

Visit www.talklegal.net

Free initial assessment. No obligation to instruct us. No fee unless agreed in writing.

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The Legal Brief is published by Talk Legal. This special edition discusses the UK Budget of 28 October 2026 and selected legal implications for businesses. Some Budget measures are proposals requiring legislation or further implementation. This newsletter provides general information, not individual legal or tax advice. Talk Legal is not regulated by the Solicitors Regulation Authority. Specialist authorised legal, insolvency or tax advice may be required.

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