Dividend tax is going up… but let’s be honest, you weren’t hoarding cash anyway

If you’re a freelancer running your own limited company, chances are your financial strategy is not:

“Let me retain profits for five years to optimise dividend timing.”

It’s more like:

“Can I pay myself enough to live, cover my tax, and maybe book a holiday that doesn’t involve a spreadsheet?”

Exactly.

So when headlines pop up saying dividend tax is increasing, it can feel like HMRC has once again spotted freelancers doing reasonably well and thought:

“Lovely. Let’s have a bit of that.”

But before you panic, let’s talk about what this actually means for the normal limited company owner, the kind who takes money out gradually, lives their life, and sorts the paperwork later.

The classic freelancer setup: salary + dividends

Most freelancers operate with the tried-and-tested combo:

• A small salary (usually up to the personal allowance)

• The rest taken as dividends

It’s simple, tax-efficient, and widely used.

You’re not doing anything fancy. You’re just being sensible.

You draw money throughout the year depending on how work is going:

• Busy month? Take a bit more

• Quiet month? Take a bit less

• Client pays late? Suddenly it’s a “beans on toast” month

Very glamorous.

The myth of the dividend mountain

Some articles make it sound like limited company owners have huge sums sitting around waiting for the perfect tax moment.

In reality, most freelancers are not sat on a pile of spare cash thinking:

“I shall delay my dividend withdrawals until the most optimal fiscal window.”

Most are thinking:

“I need to pay rent on Friday.”

Dividends aren’t usually taken in one grand swoop. They’re taken as needed and then properly declared at the end of the year.

So the idea that everyone is rushing to beat dividend tax changes is… optimistic.

So what does the dividend tax increase actually mean?

In plain English:

If you’re taking dividends above your dividend allowance, you’ll pay a bit more tax on them than before.

That’s it.

No dramatic restructuring required.
No panic stations.
No need to move to a cabin in the woods and become untraceable.

It just means that over the year, your personal tax bill might increase slightly.

The impact depends on how much you take out, but for most ordinary freelancers, it’s more of a:

“Ah. HMRC again.”

A real-world example (aka: what the dividend tax actually looks like)

Let’s take a pretty typical freelancer setup.

You run a limited company making around £60,000 in profit.

Like most directors, you take:

• £12,570 salary (using your personal allowance)

• The rest as dividends, taken gradually through the year as you need them

That leaves roughly:

• £47,000 in dividends

Because your salary uses up your personal allowance, your dividends are taxed as dividends, with the £500 dividend allowance applying first.

Very roughly, the tax looks like this:

• £500 at 0% (dividend allowance)

• £37,700 taxed at 8.75% (basic rate dividends) ≈ £3,300

• Remaining ~£8,800 taxed at 33.75% (higher rate dividends) ≈ £3,000

So in total, you’re looking at around £6,300 in dividend tax for the year.

Not nothing, but also not the financial apocalypse some headlines would have you believe.

Importantly, this tax is calculated after the year ends.
You’re still taking money out month by month to live your life, pay bills, and exist as a human.

But you’re still doing well (even with more tax coming your way)

Here’s the good news:

If dividend tax is affecting you, it probably means your business is making money.

You’re earning.
You’re growing.
You’re doing well enough that HMRC has noticed.

Annoying? Yes.
A sign of success? Also yes.

Freelancing has always involved a bit of tax admin, a bit of planning, and occasionally sighing deeply at government announcements.

This is just another one of those moments.

What should freelancers actually do?

Nothing extreme. Just the usual good habits:

• Keep taking money out as you need it

• Set aside a tax pot (future-you will be grateful)

• Don’t leave everything until 30 January in a blind sweat

• Speak to your accountant if your income is increasing

You don’t need to “beat the system”.

You just need to understand what’s changing and stay on top of it.

In short…

Dividend tax is rising, yes.

But most freelancers aren’t stockpiling dividends like dragons guarding treasure.

You’re just paying yourself normally, living your life, and declaring it properly at the year's end.

The increase may mean a bit more tax…

…but it also means you’re doing alright.

And honestly?

We love that for you.