The Autumn Budget 2025 sets out a series of tax and National Insurance measures that will influence how UK businesses plan their workforce strategies over the coming years. While the Budget does not introduce new IR35 changes or major reforms specific to contractor engagement, several policy decisions directly affect the cost of employment, the structure of National Insurance contributions and the future compliance environment for umbrella companies. Together, these measures shape the landscape in which businesses hire, manage and rely on contractors, as well as how contractors plan their financial and tax obligations.
This article summarizes the updates most relevant to organizations that use flexible talent and the contractors who support them, based exclusively on information published by the government.
PAYE and Umbrella Company measures relevant to contractor supply chains
The Autumn Budget reiterates the government’s intention to reform the umbrella company market to improve transparency and reduce tax non-compliance. The policy direction is focused on shifting responsibility and tightening oversight, with a commitment to future legislation.
Key points from the government’s umbrella company measures include:
- The government is proceeding with plans to reform PAYE processes within the umbrella company labor market.
- The stated objective is to ensure that the correct tax and National Insurance Contributions are paid, and that workers are protected from non-compliant payroll practices.
- Legislation will follow to implement these reforms, with details confirmed in future updates.
While the Autumn Budget does not announce the final legislative mechanism, it reinforces the government’s intent to increase oversight across supply chains involving umbrella companies. This has clear implications for recruitment agencies and end clients who rely on umbrella workers. Businesses may need to prepare for increased responsibility once final legislation is published.
Income Tax and NIC freezes that affect contractors directly
Threshold freezes continue to shape tax outcomes for contractors who operate as sole traders or through their own limited companies.
Contractor-relevant measures include:
- The sustained freeze of the Primary Threshold and Lower Profits Limit until 2031 means contractors may see more of their income subject to NICs in future tax years.
- The freeze of the Upper Earnings Limit and Upper Profits Limit likewise means earnings rising with inflation will fall into higher bands sooner.
- The re-rating of lower NIC thresholds from 2026–27 will raise the LEL and SPT, affecting both eligibility for contributory benefits and how much self-employed contractors contribute.
While the Autumn Budget document does not introduce new measures specific to IR35 or off-payroll working, the confirmed threshold freezes and re-rating updates will still influence contractor take-home pay in the coming years. The government’s continued intention to reform the umbrella company market, including proposals to introduce joint and several liability across the supply chain, also signals a stronger focus on compliance for organizations that engage contractors.
Reduced Tax Advantages: Dividend tax rise and salary sacrifice cap
Contractors’ personal tax bills are also set to increase due to measures in the Budget that target certain tax advantages previously used by the self-employed.
Dividend tax hike
For limited company contractors, the government is raising dividend taxation. From April 2026, the Income Tax rates on dividends will increase by 2 percentage points. The basic rate will rise from 8.75 percent to 10.75 percent, and the higher rate from 33.75 percent to 35.75 percent (the additional rate remains 39.35 percent). This change means a contractor drawing dividends from their company will pay more tax on those distributions. A contractor taking around £40k in dividends annually (outside IR35) would face approximately £800 in extra tax per year from 2026, with larger dividend draws incurring even bigger increases. This move erodes some of the tax efficiency of operating via a personal service company.
NI on pension contributions (Salary Sacrifice)
Another impact for contractors, particularly those using umbrella companies, is the restriction of National Insurance savings on pension contributions. Many umbrella employees currently use salary sacrifice to contribute a portion of their pay into a pension, which avoids employee and employer NI on that amount. The Budget introduces a cap on this benefit: from April 2029, any pension contributions above £2,000 per year made via salary sacrifice will be subject to both employer and employee NICs. Only the first £2k of such contributions will remain NI-free; beyond that, standard NI deductions will apply. This removes a strategy umbrella contractors and their employers often used to reduce NI liabilities.
These tax changes reduce the financial advantages of contracting. The dividend tax rise directly affects take-home income for those working through their own companies, and the NI changes will impact umbrella contractors who previously benefited from higher net pay through pension contributions. Combined with the long freeze on income tax and NI thresholds, many contractors will see more of their income taxed over time. The result is that contractors’ net earnings are being compressed, reinforcing the need to plan ahead and operate as efficiently as possible under the new rules..
National Insurance thresholds and what they mean for workforce planning
The government confirmed that several key National Insurance thresholds will remain fixed for an extended period. While these measures take effect from 2028 onward, they form part of a longer-term freeze on thresholds that will influence future employment costs and contractor tax positions.
The Budget confirms that:
- The Primary Threshold (employees) and Lower Profits Limit (self-employed) will remain at £12,570 from April 2028 until April 2031.
- The Upper Earnings Limit and Upper Profits Limit will remain at £50,270 over the same period.
- The Secondary Threshold, the point at which employers become liable for employer NICs, will be maintained at £5,000 per employee from April 2028 to April 2031.
- The Lower Earnings Limit (LEL) and Small Profits Threshold (SPT) will be increased by 3.8 percent (September 2025 CPI) from 2026–27.
- Class 2 and Class 3 voluntary NICs will also rise by 3.8 percent in 2026–27.
These decisions continue the government’s approach of maintaining frozen thresholds at the higher end while applying CPI-based adjustments to lower earnings limits. This long-term freeze means that more earnings will gradually fall into higher NIC bands over time, which may increase employment costs in the years ahead and influence how businesses balance permanent headcount with contractor engagement.
What this means for businesses hiring contractors
The Autumn Budget does not introduce new IR35 or off-payroll reforms, nor does it alter the fundamental tax treatment of contractors. However, the broader economic measures set out in the Budget still carry practical implications for employers.
For businesses, the key considerations are:
- Long-term freezes on thresholds may increase employer NIC liabilities over time, depending on wage levels.
- Future legislation around umbrella company PAYE processes may require updated compliance and audit procedures.
- As traditional employment costs rise structurally through threshold freezes, businesses may continue to turn to contractors to maintain agility and control costs across projects.
Together, these measures reinforce the importance of having clear, compliant processes for engaging contingent talent.
The Autumn Budget 2025 reinforces the government’s long-term approach to tax thresholds and National Insurance, setting out a predictable framework that businesses and contractors will need to navigate over the coming years. With threshold freezes extending to 2031 and confirmed re-rating from 2026–27, employment costs and contractor liabilities will evolve gradually, shaping workforce strategies across the economy. At the same time, the government’s continued commitment to reforming the umbrella company market signals that transparency and compliance will remain high priorities in supply chains involving contingent labour. As businesses adapt to these changes, having a robust and compliant contractor management process will become increasingly important. Freelancer Engagement and Management Platforms like YunoJuno help organizations maintain clarity, reduce compliance risk and continue accessing the specialist skills that support growth, innovation and operational resilience.
