Dividend Tax Hike: A Blow to UK Contractors
Autumn Budget 2025: Yet Another Hit for Contractors
The Chancellor’s Autumn Budget 2025 has delivered its latest surprise—if we can still call it that—by announcing a two percentage point increase on both the basic and higher dividend tax rates. Effective from April 2026, this move will hardly go unnoticed by the UK’s contractor community, already wearied by years of shifting tax sands.
What Are the New Rates?
Here’s what you need to know:
| Tax Band | Current Rate | From April 2026 |
|---|---|---|
| Basic Rate | 8.75% | 10.75% |
| Higher Rate | 33.75% | 35.75% |
Contractors operating through personal service companies, who have long relied on dividends as a tax-efficient way to remunerate themselves, will see their take-home pay shrink—yet again.
The Rationale: Familiar Refrains, Questionable Results
The official line? “Fairness.” The government claims these changes are essential to shore up public finances and address post-pandemic deficits. Because, of course, taxing the self-employed and the enterprising has always been the backbone of economic recovery… not.
What will the real impact be? More likely than not, we’ll see:
A further tilt away from entrepreneurship, as risk-takers are punished for their efforts
Increasing complexity for small business owners, as if IR35 wasn’t enough
Contractors reconsidering whether the independent route is worth the hassle
Contractors: Collateral Damage in the War on Dividends
This is hardly the first time dividend taxes have been raised. The 2022 hike was met with skepticism, if not outright disdain, from the contracting community. Now, another increase. Tradition, stability, and the encouragement of individual effort seem to have taken a back seat to the Treasury’s insatiable appetite.
For many, the message is clear: contractors are easy targets.
Quotes & Sources
“Contractors are once again left to pick up the tab for government spending, with little in return for their adaptability and resilience.” – Independent Contractors Association spokesperson
The Institute for Fiscal Studies notes: “These rises may close a perceived gap between employment and dividend taxation, but they also risk discouraging small business activity.” (IFS Autumn Budget Response, 2025)
Official rates: GOV.UK Budget 2025
A Tradition Undermined
Britain’s tradition of rewarding individual initiative is, apparently, out of fashion. With each fiscal event, the ground shifts under the feet of those who value self-reliance and economic contribution. If the aim is stability, one might question whether repeated tinkering with the tax code is the best route. Or, perhaps, that’s too much to ask.
Next steps for contractors:
Consult with your accountant to gauge the impact on your 2026 income
Consider alternative remuneration strategies
Stay informed on further policy changes—because one thing’s certain, more are coming
The Autumn Budget 2025 signals another round of belt-tightening, and this time, it’s contractors who are expected to set the example. Tradition, continuity, stability—nice ideas. If only the taxman agreed.
