Reeves’ Budget: Tax Raids and 'Fairness' for Contractors
Summary (Lede)
Chancellor Rachel Reeves’ latest Budget has been met with disbelief and frustration among UK contractors, freelancers, and the self-employed. Grand rhetoric about making Britain the world’s best place for business is neatly undercut by a raft of measures that seem designed to extract more from those already shouldering risk. Tax hikes, threshold freezes, and pension restrictions now loom large, while the only real ‘giveaway’ is a tax cut for Bingo winnings. Because, of course, that’s what will keep Britain competitive… not.
The Budget’s Real Impact: ‘Levelling Down’ for the Self-Employed
Contractors and freelancers knew not to expect a red carpet from the Chancellor, but the scale of the tax raids surprised even the seasoned skeptics. Here’s what Reeves’ Budget really delivers:
Frozen tax thresholds until 2031, meaning fiscal drag will quietly increase the effective tax burden as incomes rise with inflation.
Dividend tax hikes that strike not just at ‘wealthy investors’ but at small business owners and solo company directors.
Property income tax rises from 2027, targeting landlords and anyone supplementing their income with rental earnings.
New restrictions on pension salary sacrifice, especially hitting contractors who use umbrella companies and higher earners aiming to save for retirement.
Savings income tax up, and a slashed ISA allowance for working-age savers.
Let’s be clear: these aren’t just policy tweaks. They’re a systematic move to equalise tax treatment between employees and the self-employed—without extending anything like equal rights or support in return. The government’s idea of fairness seems to be ‘if you risk more, we’ll just tax you more.’
What’s Changing? The Detail Contractors Need
1. Tax Thresholds Frozen Until 2031
Personal allowance stuck at £12,570
Higher rate threshold stays at £50,270
NICs thresholds also frozen
This is fiscal drag in action. As inflation nudges incomes up, more of your earnings fall into higher tax bands.
2. Dividend and Savings Tax Hikes
| Tax Type | Current Rate | New Rate (from) | Effective Date |
|---|---|---|---|
| Ordinary Dividend | 8.75% | 10.75% | April 2026 |
| Upper Dividend | 33.75% | 35.75% | April 2026 |
| Additional Dividend | 39.35% | 39.35% | No change |
| Savings Basic | 20% | 22% | April 2027 |
| Savings Higher | 40% | 42% | April 2027 |
| Savings Additional | 45% | 47% | April 2027 |
Dividend allowance remains, but the tax-free ISA limit is being cut from £20,000 to £12,000 for under-65s from April 2027. Over-65s dodge this, naturally.
3. Property Income Tax Hike
| Band | Old Rate | New Rate (from 2027) |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
Landlords and anyone with rental income are in the firing line. No National Insurance due, but that’s little consolation when tax rates jump.
4. Pension Salary Sacrifice Restrictions
From April 2029, only the first £2,000 of employer contributions made via salary sacrifice will escape employer and employee NICs. Above that, contributions are taxed.
Most basic rate taxpayers are unaffected, but higher earners—often contractors using umbrella PAYE—lose a key planning tool.
Standard pension tax relief outside salary sacrifice is not changing (for now).
5. Student Loan and NIC Changes for the International Self-Employed
Plan 2 student loan repayment threshold frozen at £29,385 for three years from April 2027.
Voluntary Class 2 NICs for those working abroad scrapped from April 2026. Now, you’ll need 10 years’ residency or contributions before you can pay UK NI while overseas.
6. Capital Gains & Inheritance Tax Changes
Business Asset Disposal Relief CGT rate rises to 18% (from 10%) in April 2026.
Agricultural/Business Property Relief for IHT reformed, with a new £1m allowance.
Pensions to be included in IHT from April 2027.
Quotes & Sources
Matthew Knight, Chief Freelance Officer at The Independency Co., sums up the sentiment:
‘An increase in taxes on savings and dividends will impact those who are taking on the risk of building a business and penalise people who are sensibly putting away money into an emergency fund.’
On pension changes:
‘Hitting salary sacrifice pension contributions is likely to put off freelancers paying into a pension, where numbers are already worryingly low.’
Vicks Rodwell, Managing Director at IPSE:
‘It’s freelancers and solo company owners that lose out most from this Budget. Not only is their personal allowance staying frozen for longer, but their dividend income is being raided too.’
‘We’re not talking about wealthy investors here – these are hardworking freelancers and small business owners… For the rate of dividends to then be hiked – on the basis that it targets assets and not work – will infuriate freelancers and company directors.’
HM Treasury Budget 2025 Document
Budget 2025 Fact Sheet: Cost of Living
The Conservative View: Fiscal Responsibility or Short-Sighted Grab?
Fiscal responsibility, we’re told, demands broadening the tax base and ensuring everyone pays their ‘fair share.’ That’s a fine principle—except when it’s applied so selectively. Contractors and small business owners are now being taxed like employees, minus the sick pay, job security, and pension matching. The supposed ‘tax equalisation’ is little more than a one-way street.
This Budget will do little to encourage risk-taking, entrepreneurship, or saving for the future. The message to Britain’s independent workforce is simple: you’re an easy target. The government’s appetite for your earnings appears insatiable, but its sympathy for your challenges is almost non-existent.
Next Steps for Contractors
Don’t let this Budget catch you napping. Here’s what to do now:
Speak to your accountant: Review the structure of your income, especially if you take dividends or have property income.
Reconsider pension strategies: Especially if you rely on salary sacrifice via an umbrella.
Plan for the long term: Capital gains, inheritance, and student loan changes all have future impacts.
Don’t assume further changes won’t come: This is only the first salvo.
And, if you’re feeling hard done by, perhaps take solace in the fact that from April 2026, Bingo winnings will be tax-free. Because the government’s message is clear: entrepreneurship is risky, but gambling is just good, clean fun.
Stay skeptical. Stay informed. And above all, stay vocal—because silence, frankly, is what successive governments are banking on.
Useful Resources
