A two week warning has been issued over a £600 HMRC tax hike set to take effect from April. A tax compliance firm has sounded the alarm over changes to the tax rules set by HMRC which will affect households from April 6, 2026.

From the start of the new tax year, changes are being made to dividends charges. The tax office will increase the basic rate of dividend tax from 8.75% to 10.75%, and the higher rate will jump from 33.75% to 35.75%.

This will affect freelancers, contractors and small business owners in particular, many of whom pay themselves through salary and dividends.

The Chartered Institute of Taxation, in its guidance, explains the tax hike.

It says: "From 6 April, taxes on dividend income are set to rise. The ordinary rate will move from 8.75% up to 10.75%, while the upper rate jumps from 33.75% to 35.75%. (The additional dividend rate, however, stays at 39.35%.)

"This adjustment will impact most of those who receive dividends, including business owners drawing part of their income from dividends, as well as investors who depend on shares and funds that pay dividends. For many directors of limited companies, dividends represent a substantial share of their earnings.

"Dividend tax is charged after a £500 allowance, using the standard income tax thresholds of £50,270 and £125,140 to determine whether dividends are taxed at ordinary, upper or additional rates."

According to tax compliance experts at Qdos, the change will leave those affected an average of £600 worse off.

It sets out that for a typical company director taking around £50,000 a year in income, structured as a mix of salary and dividends, the increase to the basic rate of dividend tax could see them pay around £600 more in tax every year. For those earning £100,000, the increase in the higher dividend rate could result in an additional tax bill of roughly £1,400 per year.

Commenting on the changes, Qdos CEO, Seb Maley, said: "Many directors of small limited companies structure their income through a combination of salary and dividends, which is a compliant way to operate. For someone taking just over £50,000 a year from their business, the increase in the basic dividend tax rate from 8.75% to 10.75% could mean paying roughly £600 more in tax each year. This nearly triples for someone paying themselves around £100,000 a year, to around £1,400 as a result of the higher rate changes.

"Alongside the need to map out a plan for these tax changes is the need for limited company directors to ensure their tax compliance. This is something HMRC will be paying very close attention to, in light of the new rates kicking in."