Originally posted on: 31 October 2024
Updated on: 30 November 2025
In her October 30th budget statement, Chancellor Rachel Reeves delivered a big budget package, steering Britain into one of the most substantial tax increases in at least the last 50 years. With over £40 billion in tax hikes and a chunky rise in borrowing limits, the Labour government aims to inject sorely needed funds into critical sectors such as healthcare and education while also supporting infrastructure investment.
Rachel Reeves’s approach signals a shift from Labour’s pre-election mantra, pivoting towards large-scale fiscal intervention. The centrepiece of the budget, a significant rise in employers’ national insurance, is projected to generate £26 billion, though it’s expected to impact wages and productivity in the longer term. Yet again the UK chancellor has missed an opportunity to overhaul the tax code, has largely failed to address the awful stamp duty tax on property, and could have taken a closer look at taxes on gambling to help deter some from making un-wise choices with their money.
This budget raises key points for contractors, freelancers, and business owners, who may feel the weight of the tax adjustments in their own operational costs. It’s clear this autumn budget represents a monumental financial commitment but falls short of the reforms that could position the UK for stronger, long-term growth.
In the following sections, we’ll explore how these budget shifts could impact the contracting community in the UK.
Employers NIC
The vast majority of our clients, who operate through their own limited companies, set their salary at a level where employer National Insurance contributions are not due. The current tax-free band in 2024/25 is £9,100 and the majority of our clients set their annual salary to £9,096 per year.
Employer NIC does not apply to sole traders, so they are also unaffected by this tax increase.
There were three main announcements made in relation to employers NIC;
- The rate of employers NIC will increase from 13.8% to 15%;
- The tax-free band for employers NIC will reduce from £9,100 to £5,000
- The Employers Allowance eligibility rules are expanded and is increased from £5,000 to £10,500. Our blog post titled Your Guide to Employment Allowance Eligibility in 2025 covers this in more detail.
Single director limited company contractors will be directly affected by these rule changes, with the tax-free allowance dropping to £5,000 in 2025/26. Contractors will either set their salary lower and take more in dividends, or will take a higher salary, and pay more payroll taxes. Either way, this change increases the tax burden on single director limited company contractors by around £600 per year.
The other workers impacted by this increase are those who work through an umbrella company. An umbrella company is required to account for employer National Insurance from the worker’s timesheet income, which will reduce the gross pay available to be paid out.
The biggest impact, however, will be felt by employers, for whom the cost of employing a person will increase substantially, and the biggest impact will be felt by those employers paying the lowest wages. For an employer paying an annual wage of £25,000, the employer NIC due increases by £806 representing an overall cost increase of 3%. You can see how some employers may not be offering wage increases next year.
Umbrella Industry Regulation
Reforming the umbrella industry in the UK has been discussed for several years now. It’s clear that the system is broken, as many umbrella firms operate without complying with their tax obligations.
We offer our own umbrella service, called No Worries Red Umbrella. One of our key differentiators is that we are accredited by the FCSA, which audits us annually to ensure our umbrella service operates compliantly, that we deduct the correct taxes from our workers payslips, and that we pay all taxes due across to the HMRC.
The proposed changes for the umbrella industry will take effect in April 2026. These changes will shift the liability for unpaid taxes from a dodgy umbrella company to the recruitment company that engaged the worker, or to the end client if there was no recruitment company involved.
Because this changes puts all the tax liability of the recruitment agency/end client, it will be up to them to either run their own payroll system for contractors, or to work with an accredited umbrella company, like No Worries Red Umbrella, that can demonstrate compliance.
We expect more developments in the next 12 months, and the final changes will likely depend on reactions from recruitment agencies and end clients.
Limited Company Contracting
I just wanted to add a quick note at this point.
With the cost of hiring employees significantly increased due to the rise in employer National Insurance, and with upcoming umbrella regulations impacting recruitment agencies and clients, it’s highly likely that an environment will be created that benefits limited company contractors.
I feel these two changes will encourage recruitment agencies and end clients to reassess their working practices to see if they can open up roles for contractors that are outside of IR35. By doing so, they could avoid the increase in employer National Insurance and any potential impacts from the umbrella industry regulations mentioned above.
Business Asset Disposal Relief (BADR)
This relief is available to limited company contractors when they close down their company and can provide a tax-efficient way of extracting retained earnings from their business as it is wound up.
There was some concern in the months leading up to this budget that this relief might be scrapped altogether. However, the good news is that it remains in place. Instead, the tax rates that apply will increase.
Currently, if a contractor uses BADR to close down their company, they pay tax on retained earnings at a rate of 10%. This rate will remain until 5 April 2025. From 6 April onwards, the rate will rise to 14%, and the following year it will increase to 18%, where it will remain.
As you can see, the tax savings from using BADR will decrease with these changes. In the coming months, we’ll conduct a detailed analysis to ensure our clients closing down their companies receive the best possible advice.
This relief is not widely used by our clients, but these changes will likely discourage even more clients from taking this option. This change will mostly impact clients who are looking to close their company from next year onwards and have retained earnings of more than around £60,000 in their business bank account.
Capital Gain tax Changes
The capital gains tax rates on selling shares has increased significantly effective today. Let’s dive into the detail.
Capital Gains Tax applies if you buy an asset, such as residential property or stocks, and the value of those assets increases. When you eventually sell these assets, the capital gain is taxed at the prevailing Capital Gains Tax rate.
Currently, different tax rates apply specifically to residential property compared to other types of assets. For basic rate taxpayers, the Capital Gains Tax rate was 10%, while higher rate taxpayers paid 20%. For residential property, the Capital Gains Tax rates were 18% and 24%, respectively.
With this change, Capital Gains Tax rates are now standardised across the board. The new rates, effective immediately, are 18% for basic rate taxpayers and 24% for higher rate taxpayers.
In practice, this means the Capital Gains Tax rate on residential property is unchanged, while the rate on selling stocks and shares has increased significantly.
Please note, I’ve excluded the Capital Gains Tax rates for carried interest here because this is a specialised rate for those managing investment funds.
Non-Dom Changes
In a previous blog, I wrote about the proposed Non-Domicile tax changes that were under discussion. These changes have now come to fruition, and the longstanding non-dom taxation regime, in place in the UK for centuries, will end in April 2025.
This topic deserves its own blog, which we have written here UK Non-Dom Tax Changes for Kiwis and Australians. There are transitional arrangements that need to be fully understood also.
Overall, for our clients moving to the UK from another country with the intention to work here for several years, I believe these changes are largely positive and much simpler from a taxation perspective.
From April 2025, new arrivals to the UK who have never lived here before will be exempt from reporting any overseas income to the UK Tax Office for the first four years. This significant simplification will give new arrivals plenty of time to arrange their overseas investments and tax affairs, making reporting much simpler.
As mentioned, we will be preparing a detailed blog on this in the coming weeks.
Dividend Tax Rates
This year’s budget includes no proposed changes to the dividend tax rates currently in force.
Income Tax Bands
Income tax bands determine the level of tax you pay on your income, whether that be salary, dividends, bank interest, or capital gains.
For the past few years, these tax bands have been frozen—a subtle way of collecting more tax in an inflationary environment. This budget announced that these freezes will remain in place for now, with adjustments set to resume in line with inflation from April 2028.
Dividend Tax Allowance
The dividend allowance determines how much you can receive in dividends tax-free.
Several years ago, this allowance was £5,000 per year, but it has gradually been reduced and currently stands at £500. This year’s budget included no further announcements regarding changes to the dividend allowance.
Corporation Tax Rate
The rate of corporation tax our clients pay falls between 19% and 25%, depending on their business profitability and the number of associated companies they have. The most common rate tends to be around 20–21%.
The Autumn Budget confirmed that these corporation tax rates will continue for the foreseeable future.
Electric Vehicle Tax Rates
There are two significant advantages to purchasing an electric vehicle through your limited company, which we’ve covered in previous blogs.
The first is the first-year capital allowance when purchasing a brand new electric car, and the second is the low benefit-in-kind rate that applies when a director or employee has personal use of the company’s electric car.
In the budget, it was confirmed that the 100% first-year capital allowance will remain in place for at least two more years.
A gradual increase in the benefit-in-kind rate has already been signalled in previous budgets. Currently, this rate stands at 2%, but it will increase by 1% per year over the next three years, and then by 2% per year for the following two years, so that by 2029/30, the BIK tax rate will stand at 9%. By comparison, a petrol car with low CO2 emissions (51-54 g/km) will have a BIK rate of 20% in 2029/30.
Higher Rates for Additional Dwellings (HRAD)
I just wanted to add this update: effective from today, the Stamp Duty Land Tax (SDLT) surcharge on additional properties—such as second homes, buy-to-let properties, and residential properties purchased by companies—will increase from 3% to 5%.
This surcharge is added on top of the usual SDLT rates.
The government claims that this measure will support first-time buyers and primary home buyers by giving them a competitive advantage over those purchasing additional properties.
Loan Charge Review
Finally, I wanted to end on some good news: as part of the budget, a review of the Loan Charge system will be undertaken. This has been a particularly difficult period for some contractors who, back in around 2010, used offshore companies as a way of reducing their tax. Often, these loan schemes were misrepresented as being HMRC-compliant, and contractors didn’t fully understand the implications of participating in them—other than that their take-home pay bolstered using them. Effectively they were mis-sold a product by teams of accountants and “trusted” tax advisors. Back in 2010, I was asked if I wanted to refer our clients to a particular offshore scheme. The commission my business would have earned far exceeded the monthly fee these clients were paying us for their limited company accounting service.
However, I knew the practice was questionable, and we always did our best to discourage anyone from using these offshore schemes.
When HMRC eventually cracked down, their determinations went back several years, which, for some contractors, resulted in unexpected tax bills of several hundred thousand pounds, with no means to pay.
Thankfully, the current government has decided to review this issue, and I hope it can be swiftly resolved, as thousands of contractors have been living with this hanging over them for more than a decade.
Summary
Chancellor Rachel Reeves’s October 30th budget brought a historic £40 billion tax increase and expanded borrowing to fund healthcare, education, and infrastructure. Key changes include a significant rise in employer NICs, impacting wage growth and business costs. Limited company contractors may feel minimal effects, while umbrella workers see reduced pay.
There is more work for us to do as we update ourselves on the incoming non-dom rule changes and Business Asset Disposal Relief tax increases. We’ll be working on these in the coming weeks and are ready to answer any questions you may have.
“…the service has been fabulous.”
Ah Mike, we think you’re pretty fabulous too!