Chancellor Rachel Reeves has delivered the 2025 Autumn Budget, and as always, umbrella workers will be wondering what these changes mean for their take-home pay and day-to-day finances. Let’s break down the key announcements and what they mean for you.
Tax Thresholds Frozen Until 2031
One of the most significant announcements is that personal income tax and employer National Insurance thresholds will be frozen for three years from 2028-29.
Comment: This is what’s often called “fiscal drag.” When tax thresholds stay frozen, but wages typically rise with inflation, more of your income gets taxed at higher rates over time.
If you receive pay rises over the next few years, you might find that a larger portion of your earnings is taxed at the higher rate (currently 40%), even though the actual threshold hasn’t changed. It’s something to keep in mind when negotiating your day rates with agencies and clients.
Significant Change to Pension Salary Sacrifice from 2029
This is a big one. From 2029, the government will be taxing salary-sacrificed pension contributions. This changes the calculation on whether salary sacrifice remains worthwhile for larger pension contributions. You’ll want to review your pension strategy with your umbrella company ahead of this coming into effect in 2029.
Comment: Many umbrella workers use salary sacrifice arrangements for pension contributions because they reduce both income tax and National Insurance.
Under the new rules, you’ll still be able to sacrifice up to £2,000 without additional tax, but anything above that threshold will be taxed like regular pension contributions. This changes the calculation on whether salary sacrifice remains worthwhile for larger pension contributions. You’ll want to review your pension strategy with your umbrella company when this comes into effect.
Fuel Duty: Short-Term Relief, Then Increases
There’s some immediate good news and some less welcome news further down the line. The government has announced a five-month temporary freeze on fuel duty, with the existing 5p cut extended until September next year. However, staged increases will follow from 2026.
Comment: If you’re commuting to client sites or travelling between assignments, the short-term freeze will help keep your costs stable for now. However, from 2026 onwards, you should budget for gradual increases in fuel costs. This is particularly relevant if you’re claiming mileage expenses or if fuel forms a significant part of your commuting costs.
Electric Vehicle Charges Coming in 2028
The Budget introduces a mileage-based charge on battery electric and plug-in hybrid cars from 2028. Electric cars will be charged 3p per mile, while plug-in hybrids will face 1.5p per mile under the new electric vehicle excise duty.
Comment: If you’re driving an electric or hybrid vehicle for work purposes, this will add to your running costs from 2028. It’s worth factoring this into your calculations if you’re considering switching to an electric vehicle in the coming years. The cost advantage of electric vehicles will be reduced, though they may still work out cheaper than petrol or diesel, depending on your mileage and charging costs.
Rail and Bus Fare Caps
On a more positive note, the chancellor has extended the bus fare cap and frozen rail fares and prescription charges.
Comment: If you rely on public transport to get to client sites, this should help keep your travel costs manageable. Frozen rail fares in particular can make a real difference to your monthly budget if you’re travelling regularly between assignments.
ISA Changes: New Rules for Savers
The overall £20,000 ISA allowance remains the same, but there’s an important change in how you can use it. From now on, £8,000 of this allowance will be reserved exclusively for investment ISAs. However, if you’re over 65, you’ll continue to have the full £20,000 cash ISA allowance.
Comment: If you’re under 65 and have been using your full ISA allowance for cash savings, you’ll need to rethink your strategy. You can now only put £12,000 into cash ISAs, with the remaining £8,000 available for stocks and shares or other investment ISAs. This might be a good prompt to consider diversifying your savings, though it reduces flexibility for those who prefer the security of cash.
Property Income Tax Rates Rising by 2%
If you’re earning rental income from property, there’s a direct impact coming your way. Property income tax rates will rise by 2% from April 2027 across basic, higher and additional rates, taking these to 22%, 42% and 47% respectively.
Comment: For umbrella workers who’ve invested in buy-to-let properties or have other rental income, this will reduce your net rental income from April 2027. If you’re earning rental income at the higher rate, for example, you’ll be paying 42% tax instead of 40%. It’s worth factoring this into your property investment calculations and budget planning.
Savings and Dividends: Tax Rates Increasing by 2%
Tax rates on dividends, property, and savings income are increasing by 2 percentage points.
Comment: If you have savings accounts generating interest or investments paying dividends, you’ll pay more tax on this income. This affects any income from savings or investments outside your umbrella employment. Combined with the ISA changes above, it reinforces the value of making full use of your ISA allowances to shelter savings and investments from tax.
Energy Bills Set to Fall
There’s some positive news on household costs. The chancellor is scrapping the Eco energy scheme, which should cut the average household energy bill by £ 150 from April.
Comment: This is a straightforward saving on your household expenses. An extra £150 in your pocket each year might not sound like a considerable amount, but it’s a welcome reduction in fixed costs, especially when combined with frozen rail fares and the extended bus fare cap.
What Should You Do Now?
The key changes won’t come into effect immediately, which gives you time to prepare:
- Review your pension contributions: Speak to SmartWork about how the 2029 pension changes might affect your salary sacrifice arrangements.
- Budget for future fuel increases: If you drive to assignments, factor in the coming fuel duty increases when planning your finances from 2026 onwards.
- Consider your vehicle choice: If you’re thinking about switching to an electric vehicle, weigh up the new mileage charges against potential savings on fuel and other running costs.
- Plan for frozen thresholds: From 2028, remember that frozen tax thresholds mean any pay rises will be taxed more heavily. Factor this into your day rate negotiations.
As always, if you have questions about how these changes affect your specific situation, the SmartWork team is here to help. We’ll keep you updated as more details emerge about how these measures will be implemented.
This article is for general information purposes only and should not be considered financial or tax advice. For personalised guidance, please consult a qualified financial adviser or tax specialist.
