Home Self-Employed IPSE warns dividend tax increase will hit freelancers hardest

IPSE warns dividend tax increase will hit freelancers hardest

Growing tax burden concept. Businessman is frustrated by growing tax.

The Association of Independent Professionals and the Self-Employed has criticised the government’s decision to increase the dividend tax rate, saying the decision will impact the UK’s freelance workforce the hardest.

As part of Prime Minister Boris Johnson’s plan to raise money to fund social care and the NHS, dividend taxes will be increased 1.25 per cent. The new increase, which is set to come into force from April 2022, will see limited company directors and small business owners, among others, pay more on income generated from shares they own in a company.

The increase has raised concerns that self-employed workers will be unfairly impacted, with many UK freelancers paying themselves largely through dividends from owning shares in their limited companies.

IPSE Director of Policy Andy Chamberlain said: “After the financial damage of the pandemic, exclusion from support and the changes to IR35 taxation, this new tax hike on dividends will make it almost impossible for freelancers to continue to work through a limited company. To limited company directors – from project managers to graphic designers – this is salt in a year of wounds.”

The dividend tax increase came alongside a 1.25 per cent increase in National Insurance and Andy Chamberlain added that this would also negatively impact freelancers. “The increase in National Insurance for sole traders will also be deeply damaging to the wider self-employed sector,” he said.

“While social care is of course crucial for the country, after the financial devastation of the pandemic, it is simply not right that hard-working and often struggling people – particularly the scarred self-employed sector – should be paying for it. These changes will squeeze the battered self-employed community – limited companies and sole traders alike.”

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