As bond markets react to the recent budget, one group of working professionals—self-employed contractors—faces an unexpected tax hit that could significantly impact their livelihoods.
Self-employed workers, particularly in sectors like IT, are constrained by HMRC’s IR35 regulations, which restrict their ability to form limited companies and instead classify them as “deemed employees.” This categorization forces them to work through “umbrella companies,” entities that not only manage payments but also require contractors to shoulder the employer’s share of National Insurance Contributions (NICs) and other fees. Currently, around 700,000 self-employed individuals—2.1% of the UK workforce—are part of this umbrella system.
Recent changes further exacerbate this burden. Lowering the NIC threshold for employers from £9,500 to £5,000 adds an estimated £650 per contractor — a collective increase of £455 million in costs for self-employed workers. An additional 1.2% NIC hike adds further strain, with self-employment advocates estimating this will raise the median self-employed contractor’s costs by £700 to £950 annually.
Andy Chamberlain, Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), calls this tax increase a “hammer blow” and a stark departure from pledges not to increase taxes on working individuals. He emphasises that for many umbrella workers, the new measures will add over £1,000 to their annual expenses. While the Labour manifesto promised to address the unique challenges facing the self-employed, this recent tax burden only intensifies those challenges.
