Labour government also promises crackdown on tax avoidance schemes, as well as greater funding for HMRC
Chancellor of the Exchequer, Rachel Reeves, today set out the first Labour budget in 15 years, using the fiscal event to confirm a heavily rumoured increase to employer’s national insurance – a development described as a “hammer blow” for umbrella workers by IPSE.
While the Chancellor spoke of the importance of driving economic growth, she also said “raising the revenue required to fund our public services and restore our public finances” was crucial.
However, having promised not to raise income tax, national insurance or VAT, Reeves said the government would instead increase the proportion of national insurance paid by employers, which will rise this April from 13.8% to 15% on employee earnings over certain thresholds.
Alongside the headline-grabbing hike to employer’s NI, Reeves hinted at increased funding for HMRC, as well as promising a clampdown on non-compliant umbrellas and other promoters of tax avoidance schemes.
Key measures, at a glance:
Hike to employers national insurance
Employer’s NI will increase from 13.8% to 15% on employee salaries. However, to protect the smallest employers from the increase, the government is more than doubling the Employment Allowance, to £10,500, and extending it – meaning over 800,000 employers will pay no NICs next year, despite the increase.
Increased funding for HMRC compliance activity
Promising to take “stronger action on the most egregious tax fraud”, the government has committed to “expanding HMRC’s criminal investigation work” and “recruiting an additional 5000 compliance staff”.
Clamping down on tax avoidance in the umbrella sector
The Chancellor revealed that the government is “legislating to prevent abuse in non-compliant umbrella companies” to tackle “the significant levels of tax avoidance and fraud in the umbrella company market”. This will see recruiters and end clients become liable from 2026 for ensuring correct PAYE deductions are made by umbrella companies.
Business Asset Disposal Relief (formerly Entrepreneur’s Relief)
A pledge was made to maintain Business Asset Disposal Relief (BADR) at 10% until April 2025, when it will increase to 14%, and 18% in 2026.
Corporation Tax
The government confirmed the manifesto commitment to publish a Corporation Tax roadmap, as well as maintaining the cap of Corporation Tax at 25% “for the duration of this parliament”.
Income tax thresholds
The Chancellor announced that the government will unfreeze income tax thresholds in 2028/29, updating them in line with inflation – in a move to ensure workers, including many self-employed, aren’t impacted by fiscal drag.
More information on all the measures announced at the Autumn budget can be found in the official policy document.
Budget will cost umbrella workers “in excess of a thousand pounds a year”
Andy Chamberlain, Director of Policy at IPSE, said: “The Chancellor’s changes to employers’ national insurance will leave a huge dent in the finances of more than 700,000 umbrella company workers, who cover the cost of employers’ national insurance through their rate of pay.
“Not only will they be covering a higher headline rate of employers’ NI from next April, but they’ll be paying it on an extra £4,100 of their earnings. For many umbrella workers, this will cost them in excess of a thousand pounds per year.
“This is a hammer blow for umbrella company workers – many of whom have been forced into these companies due to IR35 tax rules – and is a clear breach of government’s pledge not to raise taxes on working people.”
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