Not much change for sole-traders, increased NI for limited company freelancers
The new Labour government has announced its first budget - here is our round up of what it means for freelancers.
Income Tax - No change.
No changes to Income Tax.
VAT - No change.
No changes to VAT.
Corporation Tax - No change.
No changes to Corporation Tax.
National Insurance - increased for limited company freelancers
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Employers’ National Insurance contributions will increase from 13.8% to 15% from April 2025 - this will affect limited company owners (as you pay yourself as an employee as your own employer). If you’re a single-person limited company, paying yourself a basic salary of £12,570, you’ll pay ~£1,508.40 in employers’ NICs - which is roughly £650 more than previous years.
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There’s a decrease in the threshold at which employers’ contributions are due - from £9,100 to £5,000, which means sole directors will start paying employers’ NICs on their salary from £5000.
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For sole-traders, there’s no direct effect on you, but it may lead to your clients being less keen to pay you via Umbrella or PAYE, as there’s a 1.2% increase in the employer’s contribution, or could lead to a slight decrease in day rates, if they have to factor in that cost to the overall budget.
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The Employment Allowance will increase to £10,500, which means small businesses with more than one employee (i.e. not most freelancers) are unlikely to be affected.
Capital Gains Tax - increased
Rates will increase to 18% (for the lower rate) and 24% (for the higher rate).
Business asset disposal relief - increased
Previously known as entrepreneurs’ relief - this tax will increase to 14% from 2025/26, and 18% from 2026/2027 - effectively in line with CGT. This is applicable to both sole traders and limited company freelancers if you’re looking to wrap up or sell your business.
What does this mean for freelancers?
Some small comfort for sole-traders who aren’t seeing any direct impact on upon their incomes, although no tax breaks or reductions for those who are not protected in any way.
For limited company directors, it’s a bit of a kick in the pants - as directors already pay NIC twice, and are losing most of the benefits of the business asset disposal relief, which had traditionally been a tax break rewarding value they’d created in their businesses.
As always, we recommend speaking to an accountant to understand what this means for you and your business - and if there are any changes you need to make to your business to ensure you’re compliant.
Thanks:
Huge thanks to Gopy at AR Tax Accountants for their insights on the topic.