OBR leak reveals contractor raids before chancellor spoke
Contractor measures at Autumn Budget 2025 were revealed today before the chancellor even spoke, as the OBR mistakenly published them early in a report.
The leak reveals a 2% point increase in dividends to raise £2.1bn a year, and charging NICs on salary-sacrificed pension contributions, to raise £4.7bn a year.
Therefore, from April 2026, the basic and higher rate of dividend tax will be 10.75% and 35.75%, respectively, yielding the Treasury £1.2bn from 2027-28.
Dividend tax increase despite the chancellor championing founders and working people
The raid on dividends, which will hit limited company contractors, came despite Rachel Reeves using her speech to offer small businesses warm words.
The chancellor spoke of championing "founders", "firms," "backing working people", and she said, "growth begins with the spark of an entrepreneur."
But accountant Dan Mepham calculates that such 'in business on their own account' individuals could now be looking at an extra £800 tax bill.
Outside IR35 limited company contractor faces extra £800 payment to HMRC
Boss at SG Accounting, Mepham told ContractorUK: "Autumn Budget 2025 shows £26bn is now set to be raised via additional tax revenues over the next few years.
"While most limited company contractors will be unaffected by the salary sacrifice raid, as their contributions will be Employer Contributions, the dividend tax hike will sting.
"In fact, a limited company contractor operating outside of IR35 who withdraws around £40,000 per year in dividends would pay around £800 extra in dividend tax from April 2026.
"But this sting increases to a major burn, as it will rise to £1,800 in extra tax post April 2026 for a contractor withdrawing £90,000 in dividends per year."
£4.7bn salary sacrifice raid is yet another blow to an already pressured contracting sector
The raid on salary sacrifice, which will hit umbrella company contractors, was largely trailed before the chancellor's statement.
But Crawford Temple of compliance organisation Professional Passport, says the £4.7bn salary sacrifice raid will still shock contractors.
"Contractors using compliant umbrella providers have long benefited from salary sacrifice into their pensions, and the National Insurance savings have become even more meaningful following the recent rate increase.
"The removal of this NI-free option for both employers and employees on contributions above £2,000 will hit contractors directly, and will undoubtedly be viewed as yet another blow to an already pressured contracting sector."
Targeting pension contributions made through salary sacrifice is short-sighted
Professional Passport's CEO, Mr Temple continued to ContractorUK: "At a time when the UK faces a significant pension savings gap, it is difficult to see how curtailing legitimate pension planning mechanisms does anything to encourage individuals to build financially secure retirements.
"If the Treasury's goal is to raise additional revenue, targeting pension contributions made through salary sacrifice is short-sighted. It undermines confidence, disincentivises saving, and risks further destabilising a flexible workforce that the economy relies upon."
NIC on £2k-plus pension contributions is a kick in the teeth for contractors using umbrellas
Ciaran Woodcock, a director at SG Umbrella, is also disappointed on behalf of brolly employees.
"It's regretful that this government has decided to just give what feels like another kick in the teeth for contractors using umbrellas.
"Umbrella company contractors who previously operated via a limited company have already had their most tax-efficient way of being paid removed with the off-payroll changes.
"With more and more workers finding themselves in higher-rate tax, this pensions tax is additional raid on contractors trying to save for their future."
Autumn Budget's biggest blow to contractors is salary sacrifice changes
Yolo Wealth's Angela James, a financial adviser to contractors, thinks umbrella contractors will regard the salary sacrifice clampdown as the most taxing part of Autumn Budget 2025.
"This is the biggest blow of the budget to see…the contribution method of salary sacrifice towards pensions taxed over £2,000," James told ContractorUK.
James added that, as she predicted on income thresholds to ContractorUK back in August 2025, Reeves also declined to thaw out the freeze.
Additional three-year income tax threshold freeze disappointing for contractors
But Autumn Budget 2025 actually goes further, as it states that thresholds for both income tax and employer NICs will be frozen for an additional three years.
Yolo Wealth told ContractorUK: "It's really disappointing for contractors that the government says thresholds will be frozen for a further three years — from 2028.
"The effects of this, and the now almost decade we will see of frozen thresholds, will continue to affect UK household budgets.
"It's even more disappointing given that Labour's pledge was not to increase taxes on working people. This is a real, yet seemingly invisible increase in taxes."
Real contractor take-home pay decreases due to income tax threshold freeze until 2031
Equally disappointed, SG Accounting told ContractorUK: "Under Autumn Budget 2025, income tax thresholds continue to be frozen until 2031 in what is described as fiscal drag.
"For contractors, this freeze means that as inflation increases, their real contractor take-home pay decreases."
Michael McCullion, another expert at helping contractors assess their bottom lines, says the chancellor's message to workers who have 'take-home' rather than a 'wage' is bleak.
Autumn Budget 2025 deals two new big blows to contractors
"Today's Autumn Budget delivers two new big blows to contractors," McCullion, founder of Bright Ideas Accountancy, began to ContractorUK.
"First, with the 2% dividend tax increase, the chancellor will cost the average contractor around £1,700 a year.
"Second, with her new salary-sacrifice rules, they will see pension contributions above £2,000 attract National Insurance.
"That will further strip away the few remaining reliefs contractors rely on, marking another deeply disappointing year for the flexible workforce."
Painful salary sacrifice raid isn't until April 2029
Tom Wallace, of WTT Group, told ContractorUK that one slight relief is that the raid on salary sacrifice won't begin immediately.
He says: "The curtailing of salary sacrifice for pensions will be particularly painful for contractors.
"The attraction of such arrangements has always been the NI savings in such schemes, and given that contractors operating under umbrellas effectively fund the costs of NI through the rate paid by the end client, this will be a massive blow to them.
"Whilst this move does not limit the ability to contribute to a pension…and receive income tax relief, although it will see contractors suffer both employer and employee NI deductions on anything above £2,000, it will not be implemented until 2029."
Most umbrella companies offering salary sacrifice pensions likely to withdraw
WTT's head of tax investigations, Wallace concluded it likely that, given the limited savings and the cost of administration, "the majority of umbrellas that previously offered salary sacrifice will now withdraw such facilities."
A former tax inspector, Wallace also observed that Rachel Reeves used her speech to say the Autumn Budget 2025 publishes the Ray McCann Loan Charge Review.
Loan charge settlement opportunity published alongside Autumn Budget 2025
Autumn Budget 2025 states: "The government will legislate to give effect to its response to the independent review of the loan charge, which has been published with the review's report alongside the Budget.
"This will provide for a new settlement opportunity to support those subject to the loan charge to resolve their affairs with HMRC. This will be legislated for in Finance Bill 2025-26."
According to the Office of Budget Responsibility (OBR), the settlement opportunity will result in a loss to the exchequer of £86m in 2026-27, although it describes the uncertainty of the (negative, first-year) yield as "high."
Elsewhere at Reeves' second annual Budget, the government said cash ISAs face reform from April 2027, when the £20,000 limit will be cut to £12,000.
The remaining £8,000 will be for investment only, except for the over-65s, for whom the full £20k cash allowance will remain intact.
Cash ISA changes disappointing
Yolo Wealth told ContractorUK: "It's disappointing for savers to see the cash ISA limits reduced, particularly for those that use these efficient savings vehicles for their shorter-term savings needs, such as first-time property buyers.
"And whilst this is a blow and will have implications for some, let's try and remain positive that the allowance is still available for investment.
"You have a much higher scope for growth using your allowance within an investment, and…ISAs continue to remain a great solution for longer-term investing.
"Now that we've seen this change, which has been rumoured previously, it will be important to review your cash savings and get creative with the savings accounts utilised for cash. I suspect we may see an uptake on premium bonds as we move into the new landscape for ISAs."
Contractor tax bills to inflate by over £2,000
Making Tax Digital adviser Carolyn Walsh is less supportive of cash ISA reform.
"The chancellor just skewed the ISA allowance, restricting cash ISAs to £12,000 per year with an extra £8,000 per year allowable only if invested into stocks and share ISAs in, I think, British companies.
"Coupled with this, Reeves announced what equates to a 15.75% increase for a contractor drawing a £48,000 dividend — assuming a £12,500 salary has been paid and taking into account that Employer's NI of £1,125 per year is incurred since this tax year.
"In other words, such a contractor will pay over £2,000 per year more in taxes under this government, and [with the salary sacrifice raid too] now be restricted to investing into a pension pot to just £2,000."
UK contracting becomes less and less attractive
A former inspector of taxes for the Revenue, Walsh further told ContractorUK that some contractors will be forgiven for thinking that the writing is now on the wall.
"Summed up, the room to manoeuvre is becoming more restricted year by year.
"Therefore, contracting becomes less and less attractive, given the risks involved and the amount that has to be earned to cover running costs that an employee never has to think about."
For contractors, chancellor Rachel Reeves just missed the point
Andy Hallett, founder of Recspand, and co-founder of RecWired, agrees. He told ContractorUK this afternoon: "The chancellor talked today about small businesses and start-ups.
"But she just missed the fundamental part that many of these business-owners risk their capital, and have zero rights [under IR35 Off-Payroll Working Rules, which her budget did not address]. And so business owners like contractors shouldn't bear the same level of taxation on their earnings as staff. Combined with the Employment Rights Bill, building your own independent business looks even less exciting under the Autumn Budget's measures."
