Budget 2025: What's changing for the self-employed?

The self-employed have been bracing for impact in the run-up to this year’s Budget, amid widespread speculation about tax rises and claims that freelancers and contractors aren’t paying enough. At IPSE, we’ve been working around the clock to challenge these assertions in the media and to make sure the Treasury fully understands how potential changes would affect the sector.

After weeks of intense media scrutiny and speculation about which levers the government might pull to plug the fiscal gap, the details are finally here (in fact, we got them a bit earlier than the government intended, thanks to a leak from the OBR). 

Below, we break down what these announcements mean for you, your business and the wider sector.

The income tax personal allowance is the amount you can earn before paying tax – anything above it is taxed at the basic, higher, or additional rate. This Budget has extended the freeze on personal tax thresholds for another three years, until 2030‑31, keeping the personal allowance at £12,570, the higher-rate threshold at £50,270, and the additional-rate threshold at £125,140.

The NICs secondary threshold, which is the level of earnings above which employers start paying National Insurance contributions for their staff, is also frozen until 2030‑31. This was previously reduced from £9,100 to £5,000 as part of last year’s Autumn Budget changes.

Often called a ‘stealth tax’, these freezes mean your tax-free earnings won’t rise with inflation. If you increase your prices or day rates to keep up with the cost of living, you could end up paying more tax.

From April 2026, the government will increase the tax on dividends by 2 percentage points. This means the basic rate will rise from 8.75% to 10.75%, and the higher rate will rise from 33.75% to 35.75%. 

For company directors who rely on dividends as part of their income, this change will increase your tax liability, making it important to review the way you pay yourself and your dividend-to-salary ratio.

In our response to the Budget, we highlighted that these measures hit the 1.2 million owners of the UK’s smallest companies particularly hard. With personal allowances frozen for longer and dividend income taxed more heavily, this adds significant financial pressure and risks discouraging entrepreneurship at a time when it is most needed.

A new cap on the amount of salary that can be sacrificed into a pension without triggering National Insurance contributions will come into effect from April 2029. From that date, both employees and employers will only be able to benefit from NIC-free pension salary sacrifice on the first £2,000 of sacrificed income each year.

Salary sacrifice schemes let people pay into their pensions before tax and National Insurance are applied, effectively boosting the value of their contributions. Until now, there has been no upper limit on how much income could be sacrificed in this way. While this measure doesn’t prevent anyone from contributing more than £2,000 to a pension, it does limit the tax advantage for salary sacrifice contributions.

For umbrella workers, this reduces one of the few financial benefits of operating via an umbrella company. With the new £2,000 cap, they will no longer be able to use higher pension contributions to lower NI costs, meaning many could see a reduction in take-home pay.

Company directors who make pension contributions directly from their company will still benefit from corporation tax relief, but if they use salary sacrifice on their own PAYE income, they will now face the same £2,000 cap as employees.

For sole traders, salary sacrifice doesn’t apply because they don’t pay themselves a salary. They can continue contributing to a pension and claiming income tax relief, so this announcement won’t affect their contributions.

The Chancellor has said that from April 2027 she will reform the ISA system. While the overall annual allowance will remain at £20,000, £8,000 of it will be reserved exclusively for investments rather than cash. Savers over 65 will be able to keep the full cash allowance, but for those under 65, the annual cash ISA allowance will be reduced from £20,000 to £12,000.

The cash ISA allowance is the maximum amount an individual can save tax-free in a cash ISA each year. Until now, savers could shelter up to £20,000 of cash from income and interest tax annually.

For many self-employed individuals, cash ISAs are a flexible savings tool, providing a safety net when income fluctuates or unexpected expenses arise. With the reduced allowance, self-employed savers may need to explore alternative ways to save, as the amount that can be held in a tax-free cash account each year will now be limited.

After 16 consecutive years of the fuel duty being frozen, the government has now extended this freeze to fuel duty rates until September 2026. 

Fuel duty is the tax added to petrol and diesel, and freezing it means the amount of tax paid per litre stays the same, even as other costs rise. From September 2026, the five pence cut will be reversed gradually, and from April 2027 fuel duty rates will then be uprated annually in line with inflation.

For self-employed people who rely on vehicles for work – such as couriers, tradespeople, or taxi drivers – this freeze will help keep running costs stable. If you claim mileage allowance, the tax-free rates won’t change, but the freeze could reduce your actual fuel costs, so it’s worth factoring this into your running cost calculations.

For more information on claiming the mileage allowance, we've put together a guide here.

The Chancellor has announced that from January, VAT will now be applied to private hire taxi firms such as Uber and Bolt, which previously paid a reduced rate.

For self-employed drivers working with these platforms, the move may affect earnings indirectly. While it doesn’t directly increase income tax, higher fares could reduce demand or require drivers to adjust their pricing or working hours to maintain their income.