“HA-Haw”: Companies that blanket banned freelancers hit hardest by Employers’ NI increase

The increase in Employers’ National Insurance (NI) is likely to have the biggest impact on businesses that stopped using freelance workers because of the off-payroll working rules, says IR35 expert

Introduced on 6th April 2025, Employers’ NI has gone up from 13.8% to 15%. At the same time, the point at which businesses start paying this tax on their employees’ salaries has been lowered from £9,100 to £5,000. This means it’s now significantly more expensive for companies to employ people directly.

Experts at contractor insurer and IR35 consultancy Qdos have suggested that this tax rise is “closely linked” to the off-payroll working rules (also known as IR35 reform).

These rules, which came into effect in the public sector in 2017 and the private sector in 2021, changed who is responsible for deciding the tax status (IR35 status) of contractors. Instead of the contractor shouldering the responsibility, the business hiring them now has this responsibility.

The rules also shifted the responsibility for any errors in determining a contractor’s IR35 status. If a contractor is treated like a self-employed person (outside IR35) but their working relationship is more like that of an employee (inside IR35), and this is incorrectly identified, the business paying the contractor’s fees is now liable for the unpaid tax. 

Freelancers forced onto payrolls still bitter

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.

While this news is disheartening for people seeking permanent jobs, some freelancers who are still resentful about being made to join umbrella company payrolls might be quietly feeling a sense of satisfaction at the difficulties faced by those companies that issued blanket bans on freelancers – a feeling the Germans refer to as Schadenfreude.

The signature “HA-Haw” laugh of Nelson Muntz, the fictional character from the animated TV series The Simpsons may come to mind for the most bitter of blanket-banned contractors. Munz, known initially for being a bit of a bully, was Bart Simpson’s tormentor but later became a mate of Bart Simpson. Let’s hope blanket banners befriend contractors again in the shape of accurate self-employed worker status evaluations.

The bigger cost of blanket contractor bans

“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,” says Qdos CEO, Seb Maley. “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 continues, “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.”

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FYI UPDATE

According to Rebecca Seeley Harris of Re: Legal Consulting, HMRC has now updated the Employment Status Manual (ESM10006A) to reflect the change in the Small Company Threshold and its impact on Off-payroll Working (OPW) and IR35.

Harris Seeley said in a LinkedIn post:

Just for clarity, OPW is Chapter 10 ITEPA and refers to the situation where the client is required to make an assessment as to whether to engage the contractor on or off-payroll. IR35 is Chapter 8 and the original intermediaries legislation where the contractor is required to assess their own employment status as to whether they are on or off-payroll. IR35 only applies to small private sector companies after the reforms that were brought in by OPW.