The forthcoming UK Autumn Budget, scheduled to be delivered by Chancellor Rachel Reeves on Wednesday, 26 November, could be a watershed moment when it comes to taxation of the self-employed, freelance and contingent workforce.
Here we highlight what to look out for once the Budget announcements have been made.
In her pre-Budget, Scene Setter speech on 4 November, the Chancellor “all but confirmed both what has been known for some time – that taxes will go up – but also that the tax rises are likely to be substantial. All that remains to be seen is which taxes, and by how much,” a Travers Smith Budget tracker statement said.
RSM economists, tax and industry specialists believe the “Chancellor will have to tighten fiscal policy by £30bn-£40bn at the budget.”
“That is a tough ask while sticking to the manifesto pledges,” said an RSM report, adding: “This might be why speculation is building that the government could take the tough decision to increase income tax to make a dent on the deficit and help to give the Chancellor extra fiscal headroom she needs…Without such a move, it’s tricky to make the numbers add up, but not impossible.”
However, with boosted tax revenues coming in from higher Employer National Insurance contributions and higher wages, this black hole has become smaller, closer to £20 billion, rather than the £30 billion to £35 billion the chancellor and Treasury had estimated earlier in November, Robert Peston reported.
This deficit comes from a list of factors, including sluggish economic productivity, high debt servicing costs driven by elevated interest rates and the necessity to fund public services without resorting to excessive borrowing that might spook the bond markets.
The Office for Budget Responsibility (OBR) will publish its revised economic and fiscal forecasts alongside the Budget on 26 November 2025.
End of an era
Although nothing is set, being prepared for what could happen in the fine print of the Autumn Budget can’t hurt. Based on secondary research alone, it is expected the Autumn Budget 2025 could mark the end of the tax advantage era for entrepreneurs and solo self-employed limited company contractors and the beginning of a new fiscal neutrality.
While headline rates of Income Tax, VAT, and Employee National Insurance are reportedly politically protected, there are fears among the solo self-employed that the Treasury is executing a strategy of base-broadening, threshold freezing (fiscal drag), and structural reform to capital taxation that will likely disproportionately impact the independent workforce.
The increased Employer National Insurance Contributions (NICs)—rising to 15% with a slashed threshold of £5,000—has already created an effective tax hike of 8.7% leading to lower take-home pay for umbrella contractors.
Moves to increase income tax by 2% and reduce National Insurance by 2% would impact people over state pension age. However, Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says reports suggest an income tax freeze is more likely.
Constraints, pledges and that black hole
To comprehend the specific threats facing the self-employed in the Autumn Budget 2025, one must take apart the macroeconomic and political reasoning behind the Chancellor’s decision-making. The budget is not merely a collection of tax adjustments; it is a reconciliation between ambitious spending requirements and political promises.
Unlike previous administrations that might have relied on optimistic growth forecasts, the current Treasury orthodoxy emphasises fiscal realism. This realism calls for immediate revenue generation. The “headroom”—the fiscal space available against the mandated rules—has effectively vanished, partly due to the OBR downgrading productivity forecasts. This leads to every pound of new spending or deficit reduction being matched by a pound of new tax revenue or spending cuts, according to speculations.
The wobbly definition of “working people”
The political economy of the Autumn Budget is shadowed by the Labour government’s 2024 manifesto pledges. The government promised not to increase taxes on “working people,” which they defined via the specific mechanism of freezing the rates of Income Tax, National Insurance (for employees), and VAT. These three tax heads account for approximately 75% of total Exchequer revenue.
This creates what can be considered a fiscal straitjacket. If three-quarters of the tax base is off-limits for rate rises, it could be presumed the entire burden of the adjustment must fall on the remaining 25%. This residual quarter is composed largely of corporation tax, capital gains tax, inheritance tax, and taxes on dividends—areas that are the primary domain of the self-employed, business owners, and investors.
The government has deployed a strategy to justify this targeting. By defining “working people” strictly as employees dependent on PAYE wages, the Treasury has created itself permission to increase the tax burden on those who derive income from profits, assets, or dividends.
The self-employed are arguably not categorised as “working people” in this convenient political definition, but rather business owners or asset holders, exposing them to tax hikes that technically do not breach the manifesto.
According to the Institute for Government, there have been reports that “the prime minister and chancellor are focusing specifically on protecting people whose income from work is less than £45,000 a year.” This gives a preview of the remaining taxpayers who could end up sacrificing more of their take-home pay to bring down the “black hole.”
Fiscal Drag: the strategy that isn’t fooling anyone
Even if headline rates may remain static, the effective tax rate for all workers, including the self-employed, is rising sharply due to fiscal drag. The decision to extend the freeze on Income Tax thresholds (Personal Allowance at £12,570 and Higher Rate threshold at £50,270) beyond the original 2028 expiry date to potentially 2029/30 is noteworthy.
As inflation drives nominal earnings upward, even if real earnings are stagnant, this mechanism drags more freelancers into the 40% (higher) and 45% (additional) tax bands.
How much does the freeze generate for the Treasury?
The OBR has estimated that the six-year freeze in these tax thresholds will raise an additional £38.6 billion in 2029/30. The OBR forecast this policy will result in an “additional 4.2 million individuals paying income tax, and 3 million more people paying the higher rate in 2029/30.”
The OBR also forecast that 600,000 more individuals will have moved to the additional rate band. Total receipts from income tax are forecast to rise from £251 billion in 2022/23 to £398 billion in 2029/30.
VAT freeze
For a sole trader, the freeze on the VAT registration threshold at £90,000 similarly acts as a drag, pulling more small businesses into the complex VAT regime purely due to inflationary price adjustments rather than genuine business growth. This policy of inaction as action could give the Chancellor the ability to raise billions without ever announcing a tax rise in a Budget speech.
In addition to extending the freeze in income tax thresholds, CMS Law-Now predicts the following to be amongst the most likely announcements:
- Charging national insurance contributions (NICs) on pension contributions exceeding £2,000 by way of salary sacrifice
- Increasing the tax rate on dividends and cutting the dividend tax-free allowance
- Increasing the rates of certain gambling duties and levies
- Introducing a new “mansion tax” – currently expected to be by way of applying a “surcharge” to higher value properties, using the existing council tax framework
- Ending the freeze on fuel duty
Threat of Employer NICs on pension contributions
Beyond the rate hike, a persistent area of speculation for the Autumn Budget 2025 is the introduction of Employer NICs on private pension contributions. Currently, employer contributions to a pension scheme are exempt from NICs. This relief costs the Exchequer billions annually.
Several commentators have predicted Chancellor of the Exchequer Reeves could “cap the amount employees can sacrifice to £2,000 a year without paying National Insurance. Any contributions over this level would result in employees paying the full rate of National Insurance on the amount contributed above the limit.”
If the Chancellor were to set an Employer NIC rate on pension contributions, here’s how things could pan out:
Limited company directors: Those who use company contributions to reduce Corporation Tax and extract profits tax-efficiently would face a penalty on their retirement savings. Any contributions over the £2000 cap would result in paying the full rate of National Insurance on the amount contributed above the limit.
Umbrella contractors: Contractors often use “salary sacrifice” to divert income into pensions to avoid high marginal tax rates. If the umbrella company (as the employer) is forced to pay NICs on these contributions, contractors would have to ask if the umbrella would pass this cost on to the contractor in some way, effectively neutralising the tax efficiency of salary sacrifice.
Flat rate tax relief on pensions?
The possibility of the introduction of flat rate tax relief on pensions is also something to look out for in the Budget.
As it stands, workers receive tax relief at their marginal rate. This, as HL’s Morrissey explains means a £100 pension contribution costs a basic rate taxpayer £80, while for higher and additional rate taxpayers the cost is just £60 and £55, respectively.
“A move to a flat rate of 30% would be a boost to basic rate taxpayers, meaning that that contribution would only cost them £70,” she says. “However, it would be a real blow to higher and additional rate taxpayers. A flat rate of 20% wouldn’t change anything for basic rate taxpayers but would spell further bad news for those on higher rates.”
The pensions expert suggests those who haven’t already used up their £20,000 ISA allowance could put some tax-free cash in there.
“Putting it in a stocks and shares ISA means it won’t miss out on investment growth and income can be taken tax-free,” says Morrissey.
“However,” she says, “be aware of the consequences of saving or investing outside a tax wrapper. Other investments may incur capital gains and dividend tax, while keeping it in your bank account deprives it of investment growth and leaves you at risk of frittering it away. Also, beware of reinvesting it back into your pension as you risk breaching recycling rules and landing yourself with a nasty tax charge.”
Dividend taxation: what’s happening?
For decades, the limited company structure (Personal Service Company – PSC) has been the preferred vehicle for high-skilled contractors in IT, engineering, and consulting. The primary driver has been the tax efficiency of taking a small salary (up to the Personal Allowance) and the remainder as dividends.
The Autumn Budget 2025 could use the concept of horizontal equity—the idea that two people doing similar work and earning similar amounts should pay similar tax, regardless of legal structure (employed vs. self-employed).
Accountancy software company FigsFlow has said, “The Resolution Foundation has advocated for these changes, arguing that the current system creates unjustifiable disparities between employees and self-employed professionals performing economically comparable work.”
However, if the downward trend of the tax-free dividend allowance continues in the upcoming budget, everyone might need to prepare for yet another reduction or the abolition of tax-free dividend incentives.
- 2017/18: £5,000
- 2023/24: £1,000
- 2024/25: £500
- 2025/26 Projection: £0 (Abolition) or further reduction
Going back to the horizontal equity argument, while the loss of the final £500 allowance is modest (£43.75 for a basic rate payer), if all dividend income were to become taxable, that would trigger an administrative burden for micro-investors and contractors alike.
But could a more substantial threat be lurking? For example, a hike in dividend tax rates, as suggested by reports. Currently, dividends are taxed at 8.75% (Basic), 33.75% (Higher), and 39.35% (Additional). These rates are specifically calibrated to account for the Corporation Tax already paid on the profits.
The Budget may propose increasing these rates by between 2 and 4 percentage points.
A 4% increase would push the higher-rate dividend tax to 37.75%. For a director taking £40,000 in dividends in the higher bracket, this represents an additional tax bill of roughly £1,500 per year. If rates were fully aligned with Income Tax, the “double taxation” (Corporation Tax + Income Tax) would result in an effective tax rate significantly higher than that of an employee, potentially causing a mass exodus from the limited company structure.
The 60% tax trap and marginal rates
The interaction of dividend taxation with the frozen Personal Allowance creates severe marginal rate distortions. Specifically, the reduction of the Personal Allowance for those earning between £100,000 and £125,140 results in an effective Income Tax rate of 60%.
When dividend taxation is added to this mix, the marginal rate for a contractor in this earnings band is punishing. If dividend rates are increased in the Autumn Budget, contractors earning just over £100,000 could face effective marginal tax rates approaching 70% on every additional pound earned, creating a massive disincentive to work.
This inevitably shrinks household income, disposable income for the economy and Treasury coffers when high-skilled freelancers simply stop working once they hit the £100,000 turnover mark.
Capital Gains tax
The Autumn Budget 2025 could include changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT). These taxes are perceived as levies on the wealthy, making them politically easier to raise than Income Tax. However, for the self-employed, there are taxes on the lifecycle of their business.
Fidelity International’s Marianna Hunt reminds us that the Chancellor did raise CGT rates at the last Budget — increasing the lower rate from 10% to 18% and the higher rate from 20% to 24%.
Hunt suggests, “These rates could be raised again, or Reeves may consider applying specific rates to certain asset classes, for example, second properties.”
She adds, “Alternatively, she could further reduce the annual exemption allowance — the amount investors can realise in gains before CGT is applied. However, this allowance has already been pared back in recent years: from £12,300 in 2022/23, to £6,000 in 2023/24, and now stands at just £3,000.”
Historically, rises in CGT have led asset holders to refuse to sell to avoid the tax, leading to reduced liquidity in the economy and lower-than-expected tax yields. Recognising this, the Treasury may opt for a gradual increase rather than immediate alignment, but the direction is undeniably upward.
If CGT over time becomes unsustainable or even taxed at Income Tax rates (up to 45%), it would fundamentally diminish the incentive and investment proposition for starting a business. The risk-reward ratio, which relies on the potential for capital appreciation being taxed lighter than guaranteed salaried income, would be inverted.
Business Asset Disposal Relief (BADR)
For contractors, tax planning not too long ago entailed building up Retained Earnings and liquidating the company via a Members’ Voluntary Liquidation (MVL) using Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) to pay just 10% tax.
The government has already started to dismantle this relief :
- Former rate: 10%
- April 2025: Rate rises to 14%
- April 2026: Rate rises to 18%
The Autumn Budget 2025 will confirm these increases and potentially accelerate the timeline or lower the lifetime limit (currently £1 million). An 18% exit tax, combined with the administrative costs of liquidation, makes the MVL route not as attractive. Some may make some business owners consider drawing dividends annually, even at higher rates. This, however, traps capital inside PSCs.
Inheritance Tax (IHT) and Business Property Relief (BPR)
Perhaps the most aggressive structural change concerns Business Property Relief (BPR). BPR currently allows business assets (such as shares in unquoted trading companies) to be passed to heirs free of IHT (0% rate). This is important for family businesses to avoid being broken up to pay the 40% death duty.
The Autumn Budget 2025 is expected to reform BPR, potentially by:
- Capping the relief: Limiting 100% relief to the first £1 million of value.
BDO UK tax partner, Elsa Littlewood, explains, “Farmers and business owners are being urged to urgently check their wills after draft legislation published today confirms that from April 2026, the proposed 100% inheritance relief available for the first £1m of qualifying business or agricultural assets will not be transferable.”
She says,
From April 2026, changes to the inheritance tax regime will mean that the first £1m of combined agricultural and business property will continue to receive 100% relief from inheritance tax, with 50% relief on amounts over £1m.
Each person will have the £1m allowance.
She continues, “The current spousal exemption remains unchanged, so qualifying assets can pass to a UK, long-term resident spouse free of IHT during lifetime or on death.”
For the self-employed who have reinvested all their surplus cash into their business, this creates a massive liquidity liability at death.
Research commissioned by Family Business UK shows that the changes to Business Property Relief and Agricultural Property Relief could see more than 208,000 job losses by the end of this Parliament. This would be spurred by mass firm liquidations just to pay tax bills and cut economic activity by almost £15 billion and result in a net fiscal loss of £1.9 billion.
Additionally, pension pots, which are traditionally exempt from IHT, could be brought into the IHT net from April 2027. The Budget 2025 will provide the technical details of this inclusion, fundamentally changing retirement planning for the self-employed who often use pensions as wealth transfer vehicles.
Take a breath before the new normal begins
The independent workforce has come against IR35, the Loan Charge and the pandemic. Despite these challenges, more people, out of necessity, are turning to project-based work and self-employment. Those who have survived multiple governments must now, more than ever, prepare for a leaner, more regulated, and higher-tax reality.
If we see another rise in Employer NI but this time on pensions (affecting all companies and umbrella workers), an increase in Dividend Tax (affecting PSCs), and eroding Capital Reliefs (affecting exits), the current government could be steering the UK labour market toward a model where all labour income is taxed at roughly the same rate, regardless of entrepreneurial risks and the legal wrapper.
For the independent worker, this means the once fiscal premium for taking the risk of self-employment is evaporating into the mists of time. Your focus as a freelancer must transition from tax efficiency to project rate efficiency, meaning you must charge more for the value delivered. On top of this, you must factor in the assumption that a higher-tax environment is the new normal.
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