Chancellor John Healey delivered his first Budget on 28 October 2026, and his choices land squarely on contractors. Your savings and rental income face higher tax, while the dividend rules that shape your pay stay under pressure.
This guide explains what changed for you and what to do before the new tax year starts in April 2027.
Did Healey keep his promise not to raise tax on working people?
Healey told MPs he had kept Labour's manifesto promise not to raise tax on working people. That promise covers the headline tax rates on your salary, plus VAT.
Dividend tax, capital gains tax, allowances and thresholds all sit outside the pledge. If you run a limited company, those levers decide most of your take-home pay.
Has dividend tax changed for limited company contractors?
Dividend tax rose by two points in April 2026. You now pay 10.75% at the basic rate and 35.75% at the higher rate, with the additional rate unchanged at 39.35%.
Your tax-free dividend allowance stands at £500.
Dividend tax rates have not changed.
What changes for company distributions from April 2028?
The rules on how you take profits out of your company do change. From 6 April 2028, a new distributions framework aims to stop company owners paying capital gains tax rates on profits that would otherwise face dividend tax.
If you plan to close your company through a members' voluntary liquidation, watch this closely. The OBR expects the reform to raise £0.8bn a year by 2029-30, and says owners will plan around it.
The Treasury will publish draft legislation for consultation in 2027.
Is IR35 changing after Budget 2026?
The Conservatives have pledged to replace the off-payroll rules, and Reform UK says it would scrap them.
Healey's Budget leaves IR35 in place.
Why do frozen tax thresholds still cost you money?
Your personal allowance stays at £12,570 and the higher rate threshold at £50,270 until April 2031. Economists call this fiscal drag. Between now and 2031 it pushes up your tax bill every year, whether or not Healey touches a single rate.
Contractors building businesses: what does Founders' Relief mean for you?
Healey announced Founders' Relief, a new capital gains tax relief that starts on 6 April 2027. You pay a 10% rate on up to £10m of lifetime gains when you sell your business.
On the same date, the Budget halves the lifetime limit for Business Asset Disposal Relief from £1m to £500,000, still taxed at 18%. Sell a £5m business after April 2027, with the rest of your gain taxed at 24%, and Founders' Relief saves you around £670,000.
The relief targets "qualifying founders" (we don't know what that means yet) of high-growth, innovative companies. If you have grown your contracting company into a consultancy, an agency or a product business, you may qualify.