Key takeaways
- The Budget document and HMRC's overview of tax legislation and rates contain no change to IR35 or the off-payroll working rules, and no measure on umbrella companies.
- Dividend tax rates, the £500 dividend allowance, corporation tax rates and employer National Insurance at 15% all stay as they are.
- From April 2027 the BADR lifetime limit halves to £500,000, which matters to contractors who plan to close a company. Savings and property income is taxed at 24%, 44% and 49%.
- Sole-trader contractors with qualifying income over £30,000 join MTD for Income Tax in April 2027.
- Legislation in Finance Bill 2026-27 will cover payments to agency workers for cancelled, moved or curtailed shifts.
Budget 2026 for contractors is mostly about what did not change. We found no measure on IR35 or the off-payroll working rules in the Budget document or in HMRC’s overview of tax legislation and rates, and none on umbrella companies. The changes that do reach contractors come through the wider package: company owners’ tax, the Making Tax Digital rollout and HMRC compliance.
What did not change
For contractors working through a personal service company, the headline rates stay put in 2027 to 2028.
| Item | Position |
|---|---|
| IR35 and off-payroll working rules | No change found in the Budget papers |
| Dividend tax rates | 10.75%, 35.75% and 39.35% unchanged, with the £500 allowance |
| Corporation tax | 19% to 25% unchanged |
| Employer National Insurance | Stays at 15%, most thresholds frozen |
| Income tax personal allowance | Frozen at £12,570 |
| VAT registration threshold | £90,000 |
Contractors should keep reviewing their status as normal. Our guides to IR35 explained and umbrella company vs limited company remain the reference points.
What changes for contractors with a limited company
Selling or closing the company. The Business Asset Disposal Relief lifetime limit falls from £1 million to £500,000 for qualifying disposals on or after 6 April 2027. The 18% rate is unchanged. HMRC says three-quarters of claimants will still get relief on their whole gain. See our post on the BADR limit and the new members’ voluntary liquidation timing note.
Taking profits out. Rules on distributions, share buybacks and holding company structures will be reformed from April 2028. Draft legislation is due for consultation in 2027. Read company distributions reform before advising on holding company structures.
Interest and rent. Savings income and property income will be taxed at 24%, 44% and 49% from 6 April 2027. A director who lends money to their own company and receives interest is taxed on that interest as savings income. See savings and property income tax.
Equipment. The main rate writing down allowance falls to 12% from April 2027 and the first-year allowance for main rate assets rises to 50%. This affects contractors who buy equipment through the company. The detail is in capital allowances.
What changes for sole-trader contractors
Contractors who trade as sole traders face the Making Tax Digital timetable. From 6 April 2027, around 1,077,000 more sole traders and landlords with qualifying income above £30,000 must keep digital records and send quarterly updates. The threshold falls to £20,000 from April 2028.
Budget 2026 gives people who join in April 2027 no penalty points for late quarterly updates in their first year. Other relevant changes include:
- Trading allowance. It triples to £3,000 from April 2027. See the trading allowance post.
- Mileage. The 55p rate for the first 10,000 miles becomes permanent, with a lower rate above that. See mileage rates.
- Payments on account. They move to regular automated payments from April 2029.
Agency workers and cancelled shifts
HMRC’s overview of tax legislation and rates includes one agency-worker measure. Payments for cancelled, moved or curtailed shifts are taxable as employment income. Finance Bill 2026-27 will make clear that payments to agency workers for such shifts are also covered by existing tax legislation.
HMRC compliance
The Budget funds 670 more HMRC compliance officers by 2029 to 2030 and adds a statutory duty to correct tax errors from April 2028. The promoter regime also extends to VAT and indirect taxes. Contractors who use tax-saving arrangements should read our note on the new prohibition on promoting tax avoidance. See also HMRC compliance and enforcement.
Action list for contractors and their advisers
- Keep the IR35 status assessments you already have. The Budget gives no reason to change them.
- Model the effect of the lower BADR limit if a company closure or sale is planned.
- Check whether any director’s loan interest or rental income falls into the 2027 rates.
- Put sole-trader contractors with income over £30,000 on the MTD sign-up list.
- Review equipment purchases against the new allowance rates.
Frequently asked questions
Did Budget 2026 change IR35?
We found no change to IR35 or the off-payroll working rules in the Budget document or in HMRC’s overview of tax legislation and rates.
Do contractors pay more dividend tax from April 2027?
No. Dividend tax rates stay at 10.75%, 35.75% and 39.35%, with the £500 dividend allowance.
Does the BADR change affect contractors?
It can. A contractor who sells or closes a company and claims BADR faces a £500,000 lifetime limit for disposals on or after 6 April 2027, instead of £1 million.
Are umbrella company rules in the Budget?
We found no umbrella company measure in the Budget document or the tax legislation overview.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 1 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.