Following months of speculation, Rachel Reeves finally delivered her first budget this lunchtime. Here we look at the key measures.
As widely expected, employers’ national insurance is set to rise by 1.2 percentage points from April 2025, raising over half of the £40bn of tax hikes announced today.
Capital gains tax rates have been increased from today, with BADR (formerly entrepreneurs’ relief) rates set to increase from April 2025 onwards.
There were no changes to VAT, Corporation Tax, dividend tax, employees’ NI, and no mention of IR35
From 2026 onwards, recruiters and clients will be responsible for ensuring that umbrella providers have made PAYE deductions correctly as part of a wider clampdown on fraud and non-compliance in the umbrella industry.
For a list of all the measures announced today, the ‘red book’ has been published on the HM Treasury site.
Scroll down for some initial analysis from some contracting industry experts.
Key points from today’s budget
- Today’s budget will raise an estimated £40bn.
- The National Minimum Wage will rise by 6.7% to £12.44 per hour from April 2025.
- Fuel duty will be frozen. No increases until at least early 2026.
- No mention of IR35.
- No changes to dividend tax.
- No change to Corporation Tax – the main 25% rate will remain for the duration of the parliament, as will the Corporation Tax Small Profits Rate and marginal relief rates and thresholds.
- Non-dom tax regime will be abolished and replaced with a new residence-based scheme.
- No change to VAT, employee’s NICs, or Income tax.
- Employers NI will be increased by 1.2% from 13.8% to 15% from April 2025.
- The secondary threshold for employers NI will be cut from £9,100 to £5,000!
- The employment allowance will rise from £5,000 to £10,500 to help small companies. Unfortunately most contractor limited companies are not eligible to claim the EA.
- The government will target promoters of tax avoidance schemes and a clampdown on unscrupulous umbrella firms (we’re waiting to see how this will work in practice!)
- To tackle umbrella company fraud and non-compliance, recruitment agencies will be responsible for accounting for PAYE on payments made to workers supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business. This will take effect from April 2026. See industry comments below.
- The government will commission an independent review of the Loan Charge (more details to follow).
- The £1 million Annual Investment Allowance will be kept in place
- Business Asset Disposal Relief (BADR) – 10% rate will rise to 14% from April 2025 and to 18% from April 2026.
- Business Asset Disposal Relief (BADR) – lifetime £1m allowance is unchanged.
- Capital Gains Tax – lower rate will rise from 10% to 18%. Higher rate will rise from 20% to 24%.
- The CGT rate on residential property remains at 18% and 24%.
- IHT £325,000 threshold will be extended until 2030.
- VAT on private school fees is to be levied from January 2025.
How has the contracting industry reacted?
The employers’ NI hike
We asked Seb Maley, CEO of Qdos, how the NI rise will affect umbrella contractors
It seems unlikely that end clients will increase their gross fees – which would accommodate the employers’ NI hike. This means that the costs may well be passed down to umbrella workers. This wasn’t the intention of the increase, but sadly it might well be the reality.
Myron Jobson, Senior Personal Finance Analyst at interactive investor said:
In most cases, the umbrella company employs a freelancer/contractor and pays their wages through PAYE. As such, the increase in NI for employers threatens to reduce the take-home pay for hundreds of thousands of freelancers. While any tax hikes may be passed down to the end client, this might not always be an option for freelancers in competitive sectors.
We asked Dave Chaplin, CEO of ContractorCalculator, if the Employers’ NI hike would increase the demand for limited company contractors.
There is currently a growing move back to using limited company contractors who operate on an “Outside IR35” basis and/or sole traders, because some firms have reshaped how they get work done, by packaging parts of projects into deliverables, which can then be outsourced on a “for Services” basis – e.g. classic Outside IR35.
The increase of employers NI may have a small effect in increasing the number of self-employed, but the OBR don’t see it as being significant.
The proposed changes around umbrellas, where agencies/clients become liable for the wrongdoings of umbrellas are unlikely to have any effect on increasing Outside IR35 contracts, because it’s not agencies that make the status decision.
The proposed 2026 umbrella company debt transfer proposals
We asked Lucy Smith, MD of Clarity Umbrella, for her take on the proposed 2026 changes.
It makes a refreshing change to see umbrella companies finally mentioned in the Chancellor’s speech, however the latest guidance released, seems to have caused confusion across the industry. Regulation, as originally discussed, is definitely looking like “self-regulation”, but taking Option 3 on the original consultation with debt transfer to the agencies / end clients, if due diligence has not been undertaken properly, placing the PAYE liability down the chain.
Some are suggesting that this makes umbrella companies simply payroll bureau, however this is not my understanding, it is the difference between the agency / end client being “accountable” for PAYE rather than “deducting” the PAYE.
So if there has ever been a better time for recruiters to ensure they are engaging with “compliant” brollies, now is definitely the time to start being prepared, and engaging with a reputable, accredited brollies which will make sure they are not taking any risk of the liabililties.
We asked Seb Maley if he is optimistic that the umbrella clampdown will push dodgy providers out of the industry
It’s not the end game, when it comes to umbrella company compliance – the industry needs regulation, which would help flush out non-compliant operators. Nor will it please end clients and recruiters, which will be liable from 2026 – that being said, I would imagine it will increase the scrutiny on umbrella companies, who will be under pressure to demonstrate their compliance.
On the proposed 2026 umbrella company debt transfer proposals, Dave Chaplin added:
The figures released by HMRC in the policy document indicate a 39% rate of non-compliance in the umbrella industry for 2022-23, costing the exchequer over £500m a year. The provisions are likely to be as hard hitting as the Managed Service Company legislation.
Pre-budget predictions
Here are some of our most popular pre-budget articles:
- Keir Starmer puts contractors on notice for ‘painful’ Autumn Budget 2024, warning ‘it won’t be business-as-usual’
- IT contractor sector in last-ditch Autumn Budget appeals, in wake of Starmer’s ‘working people’ definition
- Umbrella contractors set to be stung at Autumn Budget by Employer National Insurance hike
- Contractors braced for dividends, CGT and pensions changes on October 30th
- Reeves’ vow to cap corporation tax at 25% gives rise to small profits rate fears
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