Budget 2025 Key Measures: Unpacking the Unlucky 13
1. A freeze in both the income tax and employer NICs thresholds
Thanks to the OBR mistakenly publishing "OBR Economic & Fiscal – November 2025" a few hours too early, contractors' tax advisers received advance warning of:
"A set of personal tax changes which increase receipts by £14.9 billion in 2029-30, including freezing personal tax and employer National Insurance contributions (NICs) thresholds for three years from 2028-29, which raises £8.0 billion." [p56]
Reeves later confirmed, including at a press conference at a hospital, that in the shape of the extended income tax threshold freeze, she's "asking everyone to make a contribution."
A tax rise in all but name
The Institute of Fiscal Studies (IFS) isn't fooled by the chancellor's innocuous-sounding ask.
The IFS says that because the frozen threshold extensions include national insurance, the chancellor's move "breaches the government's manifesto tax promise not to increase National Insurance".
"Extending the freeze on personal tax thresholds is a tax rise in all but name," agrees Qdos CEO Seb Maley.
"Millions will be dragged into higher tax bands as a direct result. This sleight of hand from the government will eat into the take-home pay of people just as much as a literal tax rise — whether you're working as an employee, a temp or a sole trader."
The Silent Tax Riser
Those working as contractors, as many of the job candidates do who Leap29's head of tech recruitment Ben Quinn places, will be impacted too.
In a list of "challenges and opportunities" that Mr Quinn says Autumn Budget 2025 presents IT contractors, he ranked the income tax threshold freeze as the first of the challenges.
The technology recruiter told ContractorUK: "With income tax and National Insurance thresholds frozen, many mid-level professionals may face higher effective taxation, potentially influencing career moves and pay negotiations."
Umbrella company Parasol called the frozen thresholds (including on employer NICs) "The Silent Tax Riser."
In an analysis he sent to ContractorUK, Parasol's head of compliance Chris Bloor wrote:
From April 2028 to April 2031:
- Personal Allowance: £12,570
- Higher Rate Threshold: £50,270
- Additional Rate Threshold: £125,140
- NIC thresholds (employee, self-employed, employer) remain fixed.
"As wages rise, more contractors will move into higher tax bands," Bloor warns. "And [they will] pay more NICs, reducing real take-home pay."
920,000 additional individuals set for higher tax
OPW adviser Rebecca Seeley Harris, who is also a tax lawyer, bottom-lined it last night.
"The thresholds for personal tax will have been frozen for a decade under this new extension to 2031. And it means 920,000 more individuals will be dragged into the higher rate tax category," she said.
2. Increasing the tax rates on dividends, property and savings income by 2% points
"Hiking the rate of dividend tax is a hammer blow to self-employed and small business owners," begins Qdos's Mr Maley, an IR35 contract review expert.
"It's short-sighted, knee-jerk and completely at odds with the government's rhetoric around building a nation of entrepreneurs.
"Take [the example of] a company director who pays themselves just over £50,000 a year, through a mix of salary and dividends.
"Raising the basic rate of dividend tax from 8.75% to 10.75% could cost them around £600 more in tax every year. Meanwhile, someone with an income of £100,000 a year is likely to pay another £1,400 in light of changes to the higher rate."
Budget 2025 may send up to 66.35% of a PSC's profits to HMRC
Matt Collingwood, managing director of IT recruitment agency VIQU, sounds disappointed on behalf of the IT contractors that he places.
Mr Collingwood yesterday told ContractorUK: "Successive governments have done everything they can to align the taxation of PAYE employees with that of PSC contractors.
"Contractors, who take on the risks of building their own businesses, have historically offset those risks with more competitive tax treatment.
"But at today's budget… the current government has added a further 2% to dividend tax. For some higher‑rate PSC shareholders, this means they could see as much as 66.35% of their profits going to HMRC."
Path to growth is getting steeper, not easier
Chartered accountant Helen Christopher is already crunching the numbers over what her clients at Beansprout Consultancy, a financial planning advisory, can expect or might need to consider.
Pending those numbers — and potential strategies, Ms Christopher told ContractorUK: "Rising dividend tax makes the financial risk of running a business far less rewarding, especially when those profits have already faced corporation tax.
"Combine that with the continued freeze on tax thresholds, higher employment costs, and the pressure of the National Minimum Wage increases, and it's clear that the path to growth is getting steeper, not easier."
Limited company contractors are an easy target for the chancellor
Conversely, it is easy for the chancellor to target contractors' dividends, especially as the current rates will likely seem arbitrary to many viewers of the televised Budget speech.
(N.B. The dividend rates for 2025-26 are 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers, respectively.)
Sumit Agarwal, boss of DNS Accountants, explained his 'contractors are easy targets' assessment to ContractorUK: "Limited company contractors have again been positioned as an easy target by this increase in dividend taxes.
"But they are people who already face IR35 uncertainty, inconsistency in contracts, and rising operating costs."
Double-whammy for UK's smallest companies
The Association of Independent Professionals and the Self-Employed (IPSE) agrees that contractors have been here before.
Yet at Autumn Budget 2025, the association fears it'll feel twice as bad.
IPSE's head of policy Fred Hicks said: "Today's Budget is a double whammy for the 1.2 million people running our very smallest companies.
"Not only will their personal allowance stay frozen for longer, but their dividend income – the money they earn from working on their business – is being raided once again."
An accountant to such tiny owner-managed companies, Dan Mepham, observes that the 2% points dividend tax rise applies from April 2026.
It only extends to savings and property from April 2027.
2% points hike in property tax will hit non-limited company contractors with rentals
Managing director at SG Accounting, Mr Mepham told ContractorUK: "Property income tax increasing by 2% from April 2027 will hurt.
"A lot of contractors own rental properties, so this will hit those of them holding those properties outside of a limited company."
3. HMRC to collect £2.1bn a year thanks to the 2% points increase
Despite a spirited defence of the self-employed on ContractorUK after the Resolution Foundation attacked them, the chancellor adopted its recommendation that a "good starting point for the UK" would be to look at "raising the basic rate of dividend taxation."
Yesterday, the budget's 2% points hike in dividends was described by the think-tank in not entirely flattering terms, however.
It said Ms Reeves' package containing the dividend taxation hike (which it called for just last month) was a "patchwork of smaller but broadly sensible tax rises."
The OBR projects that the increase in basic and higher rate dividend tax rates will only raise £0.3billion in its first year of operation (2026-27).
The Resolution Foundation may have wanted more than just a two percentage points increase on dividends.
Or perhaps it wanted the token dividend allowance (£500 for 2026-27) axed altogether.
The foundation's former chief executive, Torston Bell, is now part of Rachel Reeves' inner circle.
He also clearly wrote part of the chancellor's speech.
In particular, Ms Reeves yesterday told MPs that she was taking action from April 6th 2027, to 'narrow the gap between the tax on income from assets and income from work.'
4. OBR documents forecast a 'reduced incentive to incorporate'
Following Budget 2025, Beansprout Consultancy boss Helen Christopher told ContractorUK: "I can't help but feel a growing sense of frustration for small business owners.
"We keep hearing that growth is the priority, and that founders are the engine of the UK economy. Yet many of the measures announced pull in the opposite direction.
"What worries me most is the message this sends: if taking risks, creating jobs and building a business ultimately leads to higher taxes and fewer incentives, where is the motivation to grow or to build something valuable enough to sell in the future?"
Company directors hugely misunderstood
At Qdos, chief executive Seb Maley said — just as the Budget was lashing businesses with higher taxes: "There's a huge misunderstanding within Whitehall around what it really means to be a company director.
"Perceptions need to change, because increasing tax on these people — many of whom are the UK's innovators, entrepreneurs and growth catalysts — is one step forward, two steps back."
A growth-choking budget
From his Birmingham HQ yesterday, where Matt Collingwood runs two recruitment businesses (VIQU IT and VIQU Energy), the OBR was backed over its forecast of fewer incorporations.
"Budget 2025 was a growth-choking budget, driven by the increased taxation on businesses," Collingwood started.
"I watched the Budget from the office boardroom. And the chancellor's claim that she is 'rebuilding our economy' drew a few laughs."
Reeves just unveiled a Just Keeping The Lights On Budget
Chris Bryce, of the Freelancer & Contractor Services Association (FCSA), is sympathetic to those giving out audible guffaws to the chancellor's shout-outs (in her speech, for example, she nodded to "founders who bet their savings on an idea.")
"What stands out from this budget is what is absent," Bryce, a former contractor and now the FCSA's CEO began in a statement to ContractorUK.
"There is no major package to enhance business competitiveness; no bold corporate tax reform, no sweeping regulatory simplifications, no bold push to improve productivity via innovation incentives, [and] no industrial strategy.
"In other words, the budget feels like an exercise in just keeping the lights on — making do with higher taxes to plug fiscal holes — rather than a forward-looking plan to make British businesses more competitive or dynamic."
Chancellor's measures risk pushing talented workers out of UK contracting altogether
The boss of DNS Accountants, Sumit Agarwal, echoed to ContractorUK: "Budget 2025 shows a government talking about growth while delivering policies that do little to support the flexible workforce that keeps large parts of UK businesses functioning.
"Overall, Reeves' second Budget fails to recognise how vital the contractor community is to the UK's economy. Rather than encouraging entrepreneurship, her measures risk pushing talented professionals out of the contracting market altogether."
Too little to get business investing
Neil Carberry, of the Recruitment & Employment Confederation (REC), said: "The chancellor put growth at the heart of her speech, but there was too little in this budget to get business investing.
"There are some areas of progress. Moves on Business Rates, short course access to skills levy funding and funding for employment support schemes. But all such steps require private sector support and engagement."
The REC's CEO, Mr Carberry added: "The chancellor went out of her way to mention investment in increasing NHS appointments, but the budget documents repeat the misleading claim that government is saving money with its attack on agency staffing.
"Like so much of this budget, an approach that involves and engages the private sector would yield so much more and help close the fiscal gap on the back of a more prosperous country."
5. Salary-sacrifice raid from April 2029
The founder of Clarity Umbrella, Lucy Smith, told ContractorUK: "It seems that as the government continues to crack down on any tax saving for its flexible contract workforce, they now want to cap relief on pensions taken via salary sacrifice.
"Salary sacrifice is something used by a large number of contractors to help save cost-effectively towards retirement. So this new £2,000 cap due to be introduced by 2029, will put further pressures on those contractors looking to save for their future.
"The government is aware that it needs people to save for their future to remove pressure on the government coffers, yet this cap seems to go backwards and will put additional pressure back in the wrong direction."
Umbrella contractors should maximise pension investments while they still can
Crawford Temple, CEO of Professional Passport, said: "[The] well-trailed reduction in salary sacrifice for pensions…[is fortunately] delayed until 2029, so contractors using umbrella providers should ensure they maximise their investments over the next few years to benefit from the significant savings this provides."
Parasol compliance head Chris Bloor said in a statement to ContractorUK last night: "Given the salary sacrifice limitations have been kicked back to 2029, it represents a medium-term reprieve for those umbrella workers that utilise these arrangements.
"In my view, a change in the economic climate or government could potentially see these proposals being reconsidered nearer the time."
Higher earners will need to rethink retirement strategies
In the written analysis he shared, Bloor continued: "From 6th April 2029, NIC relief on salary-sacrificed pension contributions will be capped at £2,000 per year.
"If introduced in 2029, this represents a major shift for employees who use salary sacrifice to boost pensions. Higher earners and sectors relying on structured benefits will need to rethink strategies."
6. Joint and Several Liability for umbrella companies' clients
Budget 2025 is absent of the term "umbrella company".
It also failed to mention or even refer to April 2026's "Joint and Several Liability" legislation.
HMRC's new Umbrella Company Market policy paper
However, alongside the budget, HMRC published a seemingly new policy paper, "Umbrella company market — changes to Income Tax rules to tackle non-compliance."
The nine-chapter paper does not appear to say anything new about the JSL legislation.
The paper also does not contain the final legislative wording (which was widely expected to be produced alongside the November 26th budget).
New regulatory framework specifically for umbrella companies
Law firm Chartergates said in an update to its subscribers that it shared with ContractorUK too: "The government plans to introduce a new regulatory framework specifically for umbrella companies.
"The introduction of joint and several liability for PAYE taxes that umbrella companies are required to remit to HMRC will have an impact on all umbrella companies and those employment agencies that use umbrella companies to engage the workers they supply."
And, "Where there is no agency, this responsibility will fall to the end client business," confirms the HMRC policy paper.
JSL rules were not raised inside the Budget 2025 full report
Clarity Umbrella's Lucy Smith reflected: "It comes as not a great surprise that the JSL rules were not raised in Budget 2025, but they appear to be going ahead.
"The fact that there is still no official release of the legislative wording explains why agencies are now worrying about where they are left."
Payslip verification requests by agencies
Smith says recruitment agencies are now requesting "payslip verification" as standard, which she called a "costly but understandable addition."
"Yet on top of this," added Clarity's founder, "we are seeing more and more companies requesting rebates, presumably to try and protect themselves even further."
Parasol advises that legitimate umbrellas and agencies must "stay vigilant to avoid unintended risk."
No major adjustments to Joint & Several Liability expected
Another best-practice, it seems, is to expect JSL to apply from 2026-27 in the way that it is worded today by HMRC.
Professional Passport Crawford Temple fleshed out his assessment:
"Given that HMRC has already issued detailed guidance, and has been running webinars on the subject [of JSL] over the past couple of months, we are not expecting any major amendments.
"The direction of travel appears set, and the sector must now prepare accordingly. And I would urge recruiters and end-clients to begin planning, in earnest, about how to navigate the practical implications of these new rules and put robust plans in place as we count down to April, when the legislation comes into effect."
Umbrella tax reforms are going ahead from April 2026
And lawyers sound as if they are actively preparing for JSL's introduction as well, even if the budget report itself was silent on the framework.
Speaking to ContractorUK, Shaziya Kurmani, associate director at Osborne Clarke , explained: "The umbrella tax reforms are going ahead as expected, creating joint and several liability between the umbrella and the 'top' agency.
"Or the client where there is no agency, or where umbrella and agency are connected.
"Together with [the budget] announcements signalling the government's intention to pursue those who bend or break [tax] rules…increased scrutiny of staffing supplies seems likely."
JSL webinar to provide additional insight
To help affected parties, Parasol is running an online 'JSL webinar' this coming Monday (December 1st), through the lens of the budget and HMRC's latest policy paper.
The umbrella company says it hopes to "provide additional insight" gleaned from the Red Book and the Revenue document.
