National Insurance Bill clears the Commons, and umbrella contractors will absorb the rise
A tax framed as a levy on employers lands, in practice, on the take-home pay of contractors working through umbrellas or inside IR35.
The National Insurance Contributions (Secondary Class 1 Contributions) Bill completed all its stages in the House of Commons on 17 December 2024, sealing the increase in employers' National Insurance that Chancellor Rachel Reeves announced at the Autumn Budget. The measure lifts the headline employer rate and lowers the point at which it bites — and for the many IT contractors working through umbrella companies or inside IR35, the added cost lands squarely on their pay.
A higher rate on a lower threshold
From 6 April 2025 the secondary Class 1 rate rises from 13.8% to 15%, while the secondary threshold — the earnings level at which employers begin to pay — falls from £9,100 to £5,000 a year. To cushion the smallest firms, the employment allowance more than doubles, from £5,000 to £10,500. The Treasury expects the package to raise about £23.8 billion in 2025-26, climbing to £25.7 billion by 2029-30, though the Office for Budget Responsibility puts the net yield far lower, at roughly £16.1 billion, once employers respond by trimming wages, hours and hiring.
The Bill passed its second reading on 3 December 2024 by 332 votes to 189, with Conservative and Liberal Democrat MPs opposing it as a tax on jobs. Darren Jones, Chief Secretary to the Treasury, challenged opponents to explain how else they would raise the money the changes are meant to deliver.
Why the cost reaches the contractor
For umbrella-company workers the mechanism is unusually direct. Employer NICs are met not by the end client but out of the assignment rate the agency pays into the umbrella, so any increase is deducted before the worker's gross pay is calculated. The same logic reaches contractors judged to be inside IR35 and paid as deemed employees, where the fee-payer accounts for employer NICs on top of the agreed rate. Ciaran Woodcock, commercial director at SG Umbrella, noted that the move to 15% "equates to an 8.7% tax increase", and said umbrellas would need to give contractors and agencies an "uplift calculation" showing the new day rate required to hold take-home pay steady. On average earnings of £37,000, the firm estimated employer NICs would climb from about £3,850 to roughly £4,800 — close to £950 more across the year.
The Freelancer and Contractor Services Association urged the government either to cancel the increase or to require end-users to lift assignment rates, so that freelancers were not left absorbing a charge designed for employers.
What it meant for contractors
Unless day rates are renegotiated upward, umbrella and inside-IR35 contractors face a straightforward fall in take-home pay from April 2025, because the higher employer charge is theirs to bear in all but name. Some in the sector saw a silver lining: Seb Maley, chief executive of the contractor insurer Qdos, argued that costlier employment could push firms back towards engaging contractors off-payroll, where hiring can be more flexible and, in some cases, cheaper. For most, though, the immediate effect is a thinner margin on the same work.
With the Bill through the Commons before the Christmas recess, the rise was all but locked in, leaving contractors to price a Budget measure aimed at their clients into their own rates.