How will changes to Employer’s NI impact umbrella employees?

In last year’s Autumn Budget, Chancellor Rachel Reeves announced changes to Employer’s National Insurance (NI) that will come into effect from April 2025. These measures are expected to raise billions in additional tax revenue, but they will also increase employment costs for businesses – including umbrella companies.

If you’re a contractor working through an umbrella company, it’s important to understand how these changes might affect your take-home pay and what steps you can take to stay ahead.

What’s changing?

From 6 April 2025, two changes to Employer’s National Insurance will take effect:

• The Employer’s NI rate will increase from 13.8% to 15%. This means that for every £1,000 of earnings above the NI threshold, an extra £12 in Employer’s NI will be due.
• The secondary threshold for Employer’s NI will be reduced from £9,100 to £5,000 per year. This means Employer’s NI will apply to a larger portion of earnings, further increasing costs.

How will this affect umbrella contractors

For all businesses who employ people, employment costs will go up. In the case of umbrella company employees, employment costs are deducted from the overall assignment rate paid by the agency to the umbrella company. 

If the assignment rate stays the same, any increase in Employer’s NI will have a knock-on effect on take-home pay. For this reason, many agencies have been able to negotiate uplifted rates with their clients, in order to mitigate this impact. 

Could there be any positive outcomes?

While the increase in Employer’s NI is unpopular, it may also drive shifts in how businesses engage contractors:

• Increased demand for contractors. If hiring permanent employees becomes more expensive due to higher Employer’s NI, some businesses may turn to using contractors and fixed term staff to reduce costs.
• Potential rate renegotiations. Recruitment agencies may work to negotiate higher assignment rates to offset the reduction in take-home pay.

Beware of non-compliant umbrella schemes

With these changes on the horizon, it’s more important than ever to be cautious when choosing an umbrella company. Some providers may attempt to lure contractors in with promises of unrealistically high take-home pay to offset any reductions in earnings. 

However, these schemes are often non-compliant tax-avoidance arrangements that can lead to serious financial consequences, including unexpected tax bills, fines, and legal action. Always ensure that your umbrella company operates within HMRC guidelines and offers full transparency on deductions and compliance. If something sounds too good to be true, it probably is.

How Liquid Friday can support you

At Liquid Friday, we understand that changes to tax rules and legislation can be concerning, especially when they impact your earnings. That’s why we’re committed to keeping you informed and providing clear, straightforward guidance. If you have any questions or would like a projected calculation of your take-home pay for the new tax year, our team is here to help. Get in touch with us—we’re always happy to offer support and clarity.