Stop the pay cut: why and how freelancers and umbrella workers must adjust their rates post-budget
Both the Spring and Autumn Budgets have been challenging for the self-employed and umbrella workers
UK freelancers and umbrella workers face a take-home pay cut due to 2025 post-Budget tax rises and threshold changes. Learn the essential rate increases (1.5% to 10%) needed to protect your income, with suggestions on calculating costs and communicating the change professionally.
If your business has been negatively impacted by the announced UK tax rises or threshold changes, you must factor these costs in immediately and adjust your rates accordingly. Simply put, if you do not increase your rates, you are effectively giving yourself a pay cut.
Building in an annual adjustment of 3–5% is standard practice. This keeps your income aligned with the rising cost of living and helps normalise rate changes. However, if you haven’t raised your rates in years, you are likely already grappling with a loss of real income due to high inflation, increased National Insurance (NI), and Dividend tax rises.
Calculating your required increase
Only you know the increase required to sustain your growth. To calculate the necessary uplift, factor in:
- How many years have you not raised your rates
- The current Bank of England interest rate
- Increases in your essential business outgoings (e.g., insurance, energy bills, software subscriptions, and accounting costs).
Communicating the rate change to clients
Once you have calculated the new rate, effective communication is key. Here are a few suggestions:
- Give 1–2 months’ notice before the increase takes effect.
- Frame it professionally: “My rates are increasing from [date] to reflect rising employment costs, inflation, and the continued high quality of client services.”
Umbrella contractors: Addressing Employer NI
For freelancers working through umbrella companies or inside IR35, a rate increase is essential.
In the umbrella model, the Employer’s costs (including Employer’s National Insurance Contributions, or NICs) are deducted from the gross assignment rate before your employee’s gross pay is calculated. With the Employer NI rate increasing from 13.8% to 15% (effective April 2025), this increase is passed on in full to the umbrella worker, resulting in a direct 1.2% reduction in your take-home pay from the same assignment rate.
Your communication should mention the Budget’s employer cost changes:
“Following the Budget announcement of increased employer costs taking effect in April 2025, alongside the rising cost of business, my rates will be adjusted by [X]% from [date]. This ensures I can continue delivering the same quality service while covering the additional statutory employment costs.”
Self-employed and limited company freelancers
Self-employed sole traders are not directly affected by the Employer National Insurance rise, as they pay Class 2 and Class 4 NI on their profits.
However, Limited Company freelancers will need to factor in the rise in Dividend Tax effective from April 2026. After the £500 Dividend Allowance, the two-percentage-point increase means:
- The basic rate rises from 8.75% to 10.75%.
- The higher rate rises from 33.75% to 35.75%.
Recommended Minimum Rate Increases
| Status | Recommended Increase | Rationale |
| Umbrella Company Contractors | Minimum: 1.5% to 2% Realistic: 2% to 3% | Covers the 1.2% Employer NI rate rise and the reduction in the Employer NI threshold (from £9,100 to £5,000), which adds further costs. A 2% to 3% increase protects your actual take-home pay. If you haven’t raised rates in years, you may need a higher figure and must justify it with the recruiter or end client. |
| Self-Employed Sole Traders | Recommended: 3% to 5% | Covers general inflation and rising business operating costs (e.g., insurance, utilities). |
| Limited Company Contractors | Recommended: 3% to 10% | Covers inflation, rising business costs, and factors in the increased Dividend Tax rate effective from April 2026. |
All freelancers must consider market rates for their role and industry as a benchmark. For example, the 2024 average day rate was around £390, reflecting a +3% year-on-year increase.
To ensure your rate is competitive, check industry benchmarks. Sites such as Yuno Juno do an annual sector and role-specific report on average freelancer rates, which can provide a useful guide if you are second-guessing your rate or think you are pricing too low.
Ultimately, use these averages as a guide based on the unique skills and services you are actually providing. If you offer a client multiple skills, these should be costed individually. Arbitrarily copying other rates can lead to stagnation in certain sectors, such as freelance journalism.
