A leading IR35 specialist says the recently implemented hike in Employers’ National Insurance (NI) contributions is expected to place the greatest financial strain on companies that opted to ban the use of limited company contractors due to the off-payroll rules.
Qdos says the hike should serve as a wake-up call for organisations to reconsider their approach.
What has happened to Employers’ NI rates?
From 6th April 2025, the rate of Employers’ NI has risen from 13.8% to 15%.
Additionally, the salary threshold for triggering this tax has been cut from £9,100 to £5,000, further driving up the cost of employing staff on payroll.
Although the Employment Allowance (EA) has been increased from £5,000 to £10,500 and has become available to firms of all sizes, this won’t offset the tax hike’s impact for larger firms.
Qdos has highlighted what it says in an inextricable link between this tax increase and the off-payroll working rules (‘IR35 reform’).
These rules, rolled out in the public sector in 2017 and extended to the private sector in 2021, shifted the responsibility for determining a contractor’s employment status for tax purposes from the contractor to the hirer (usually the client).
Only contractors working for ‘small companies’ can continue to operate under the original IR35 rules.
This change also moved the liability for incorrect IR35 decisions – where a contractor is treated as self-employed but effectively operates as an employee – from the individual to the business paying them.
Following the implementation of the off-payroll rules, many larger firms chose to blanket ban limited company contractors.
They forced contractors to use umbrella companies, regardless of their working practices and if workers would ordinarily be found to be outside IR35.
However, with employment costs now significantly higher due to the NI hike, the financial implications of this approach for end clients are likely to be more pronounced.
Is the NI hike a tipping point for blanket ban clients?
We asked Qdos CEO, Seb Maley, if he thinks the employers’ NI hike will be the tipping point for many large contractor hirers to reconsider the practice of blanket bans:
It could and should be the tipping point for those businesses that needlessly forced contractors onto the payroll – a catalyst for more contractor opportunities and the reversing of blanket determinations. These firms have been shouldering the cost for years, but now, the employers’ NI hike makes it even more of a burden and the decision to re-engage genuine contractors a no brainer.
Maley also reiterated that compliance with the off-payroll rules is the most sensible option for clients and contractors alike, as long as the process is managed professionally.
There’s been talk in recent months about the risk of the rising cost of employment facilitating what’s known as false self-employment. But those carrying out well-informed employment status determinations can engage self-employed workers confidently and compliantly off-payroll – while experiencing the cost benefits.
