How will the 2017 Budget impact freelancers, self-employed and limited company owners?

The change that will affect contractors and other limited company owners is the reduction of dividend allowance from £5,000 to £2,000.

So that means an extra £3,000 will be taxed at either:

  • 32.5% rate, this equals to £975 more tax you have to pay. Most contractors’ income level will fall into this category; or
  • 7.5% rate, this equals to £225 more tax you have to pay, if you are a basic rate tax payer.

Please note that this change will take effect from 6 April, 2018. You still have the £5,000 allowance in the 2017/18 tax year.

The class 4 National Insurance contribution ramping up from 9% to 11% will not have an impact on contractors and limited company owners, with or without the dramatic U-turn from Philip Hammond. The reason is that the class 4 NIC is applicable to self-employed, who are not operating through limited companies. When you operate through a limited company, your company as an employer and you as an employee will pay class 1 National Insurance when your salary is over £156 per week.


However, there are are other forms of allowances that you can take advantage of, for example, Starting Rate (SR) for savings allowance at £5,000. You will be eligible if your non-saving income is less than the combined total of personal allowance and starting rate. Dividend income is not non-saving income.

If you (your company) pay yourself a salary of £12,000 and take out a director loan of £50,000 and pay yourself an 8% interest, you will get £4,000 interest within the 0% savings rate band. (11,000+5000=12,000+4,000). That is you can’t find anywhere else for your £50,000 spare cash with better than 8% investment return.