The now in-force increase to Employers’ National Insurance (NI) is set to hit businesses that banned freelance workers in response to the off-payroll working rules the hardest – says IR35 expert Qdos, which advised that the tax hike must become a “catalyst for a rethink” in approach among these businesses.
Introduced on 6th April 2025, Employers’ NI has increased from 13.8% to 15%, while the threshold at which this levy is payable on employees’ salaries has been reduced from £9,100 to £5,000.
This has significantly increased the cost of engaging workers on the payroll.
Qdos has advised that this tax rise is “inextricably linked” to the off-payroll working rules (also known as IR35 reform).
The rules – introduced in the public sector in 2017 and private sector in 2021 – shifted the responsibility for determining the tax status (IR35 status) of contract workers from the contractor to the business engaging them.
Alongside this, the tax liability for incorrect IR35 determinations – which is when a contractor is engaged in a self-employment manner (outside IR35) but holds an employee-employer-like relationship with their client (inside IR35) – was passed from the contractor to the party paying their fee.
In response to these changes, many businesses insisted that entire contractor workforces transfer onto the payroll (often via umbrella companies), irrespective of their IR35 status – in what Qdos describes as a “workaround” to the changes. However, with employment costs having risen, the cost of doing this has also risen, Qdos CEO, Seb Maley explained.
“Many businesses have been counting the cost of blanket contractor bans in response to the off-payroll rules – a set of tax rules that are inextricably linked to Employers’ NI. In some cases, thousands of contractors were transferred onto the payroll at once irrespective of their true employment status – at a huge and ongoing expense,” Maley said.
“For years, these firms have been paying at least 13.8% more on every genuinely self-employed contractor they’ve placed on the payroll. Now, employers’ NI has jumped and with it, so has the cost of this approach. This tax increase needs to become a catalyst for a rethink among these businesses.
“There’s been talk in recent months about the risk of the rising cost of employment facilitating what’s known as false self-employment. But those carrying out well-informed employment status determinations can engage self-employed workers confidently and compliantly off-payroll – while experiencing the cost benefits. Those that needlessly stick with so-called contractor bans will be hit hardest by this latest tax increase.”
