National Insurance Squeeze
Chancellor Rachel Reeves appears set to raise taxes on up to 700,000 freelance workers through an increase in employers' National Insurance (NI), a move that could strain Labour’s pledge to avoid tax hikes on “working people.”
Although this planned NI increase sidesteps a direct tax on employees, it is expected to generate nearly £17 billion annually by raising the employers' NI rate in Wednesday’s Budget. Employers currently pay 13.8% on employee income above £9,100 annually, a rate that may rise under Ms. Reeves’ policy.
For the UK's extensive freelance workforce, especially those classified as “umbrella company” contractors, this increase translates directly into a higher tax burden, costing them up to £439 more annually. Contractors working “within IR35” tax rules — a category often dependent on umbrella companies to manage compliance and billing — are particularly affected, as they must pay both employers' NI and standard employment taxes on their income.
Andy Chamberlain, from the IPSE, which represents self-employed workers, remarked, “It’s difficult to see how this wouldn’t breach Labour’s pledge not to raise taxes for ‘working people.’” His comment reflects the growing concern that increased employers’ NI will ultimately reduce freelancers’ take-home pay.
Lucy Smith, founder of Clarity Umbrella, highlighted the potential consequences, saying, “An increase in employers' National Insurance will inevitably have a negative impact on the ever-important flexible workforce.” This impact may be especially acute in competitive sectors, where contractors have limited ability to negotiate higher pay rates to offset new costs.
In theory, contractors could negotiate day rates to absorb the NI rise, but such increases might not be viable in all industries. For example, a freelancer billing £60,000 annually would see an estimated £439 reduction in take-home pay if employers’ NI rises by 2 percentage points.
The Treasury has refrained from addressing tax change speculation directly, only stating: “We do not comment on speculation around tax changes outside of fiscal events.” Labour’s manifesto had previously committed to not increasing income tax, NI, or VAT on “working people.” Ms. Reeves has since clarified that her pledge applies strictly to employee taxes, while tough choices remain for the public finances.
