How the Autumn Budget affects contractors following employers NI hike

budget contractors

Rachel Reeves delivered her first Budget today following months of speculation about which taxes would be increased to pay for a ‘black hole’ in the nation’s finances.

This lunchtime, the chancellor announced a larger-than-expected £40bn increase in taxes—possibly the most announced at a single budget in history.

The most significant announcement was a hike in employers’ national insurance contributions, which will particularly affect umbrella workers.

There were increases in capital gains tax, but thankfully, no changes to Corporation Tax or dividend tax.

Employers NI rate increases from 13.8% to 15% from April 2025

This is the rate employers pay on their employees’ wages above the ‘secondary threshold’ – currently £9,100.

The rate will increase from April 2025, and the threshold at which it becomes payable will be cut from £9,100 to £5,000.

The employment allowance (EA) is set to increase from £5,000 to £10,500 to compensate smaller companies for the tax rise. Unfortunately, most small limited companies and umbrella employees do not benefit from the EA.

As employers’ NI is factored into umbrella contractors’ assignment rates, the hike should be accommodated into new contracts starting after April 2025. However, clients may be keen to lower rates to offset the increased costs to their bottom lines. It will be interesting to hear how the industry reacts to this tax rise.

Seb Maley from tax advisory Qdos, said that the NI hike might actually lead to an increase in ‘outside IR35’ roles:

The cost of employing people will increase, which could lead to a surge in demand for freelancers and contractors engaged off-payroll. Given how many businesses shifted contract workers on the payroll in response to IR35 reform, an employers’ NI hike may prove to be the push they needed to rethink this stance. It could become a catalyst for contract opportunities.

No changes to Corporation Tax or dividend tax

Limited company contractors will be pleased that the Chancellor didn’t hike CT or dividend tax. Both taxes have been increased significantly over the past few years, and a further rise would have been disastrous.

Reeves pledged to keep the current Corporation Tax rates unchanged for the duration of the parliament.

Changes to capital gains tax – including BADR

As widely anticipated, CGT rates have been increased – effective immediately (except in the case of BADR).

The basic 10% rate has risen to 18%, and the higher rate has been hiked from 20% to 24%.

The Business Asset Disposal Relief lifetime allowance remains at £1 million, although the tax rates will rise.

The current 10% CGT rate under the BADR regime will rise to 14% from April 2025 and to 18% from April 2026.

Action against unscrupulous umbrella companies

HMRC believes that of the “at least” 700,000 umbrella company workers who were employed in 2022/3, 275,000 worked via an unscrupulous provider—one that failed to pay the correct amount of tax.

According to the budget statement:

£500 million was lost to disguised remuneration tax avoidance schemes in 2022 to 2023, almost all of which was facilitated by umbrella companies.

As a result, the contracting industry will effectively ‘self-police’ the umbrella market. From 2026, recruitment agencies (or clients) will be responsible for ensuring that umbrella companies they work with make the correct PAYE deductions from their contractor employees.

You can find out more on this page.

We asked Dave Chaplin from Contractor Calculator if he thought this new measure would drive rogue umbrellas out of the market.

Yes, absolutely. If you engage with thieves and are liable for their crimes, you are unlikely to chose to engage with them, whether it’s petty crime or bank robbery.

I’d expect the debt transfer provisions to be unconditional, alongside some mandatory due-diligence, which if not completed, may result in criminal prosecution.

Further measures announced today

  • There was not a single mention of IR35 / Off Payroll.
  • Fuel duty will be frozen next year.
  • The non-dom tax regime will be abolished.
  • Inheritance Tax (IHT) threshold will be frozen at £325,000 until 2030.
  • The National Minimum Wage (NMW) will increase to £12.21 per hour.
  • Business rates small business multiplier in England frozen at 49.9p, standard multiplier will be uprated to 55.5p.
  • No changes to VAT, employee’s NICs, or Income tax.
  • Private school fees will be subject to VAT from January 2025.

You can read the budget documents here.

Our Partner Accountants