The Autumn Budget 2025 could be one of the most important fiscal moments in years for contractors and the wider self-employed sector.
Contractors should hope Autumn Budget addresses IR35, MTD, and income tax thresholds
With HMRC's Making Tax Digital (MTD) programme finally approaching launch, tax thresholds still frozen, and IR35 reforms in need of clarity, contractors deserve fairness and practical support from the chancellor on November 26th.
Here are the three key areas where Rachel Reeves' second budget must deliver for contractors, writes Dan Mepham, managing director of contractor and small business accountants SG Accounting.
1. The chancellor should unfreeze income tax thresholds
The personal income tax thresholds — including the personal allowance (£12,570) and the higher-rate threshold (£50,270) — have been frozen since 2021.
With inflation and rising pay rates, this freeze has pulled millions of individuals into higher tax bands through "fiscal drag."
Four benefits for contractors if Reeves unfreezes income tax thresholds
For contractors, unfreezing both the "tax-free" personal allowance and the higher-rate threshold would bring welcome relief. It would have these four benefits:
- Ease stealth taxation, allowing pay rises to feel like real increases again.
- Boost take-home pay for those edging into higher-rate tax bands purely due to inflation.
- Encourage growth, removing the sense that earning more automatically triggers higher taxes.
- Restore fairness, particularly for mid-level earners whose tax bills have risen without any policy change.
Put simply, unfreezing thresholds would let contractors keep more of what they earn. It would be a straightforward, morale-boosting step for a flexible workforce that already shoulders a heavy compliance burden.
What's the likelihood of Autumn Budget 2025 unfreezing income tax thresholds?
Low to medium: The income threshold freeze is legislated until April 2028, and lifting it early would cost billions in lost revenue.
However, Reeves may opt for a partial unfreeze, or 'indexation commitment', to ease political pressure. A modest inflation-linked uplift in 2026/27 is more plausible than a full reversal.
2. The chancellor with HMRC should publish an IR35/employment status roadmap
After years of patchwork reforms, contractors urgently need clarity and stability on IR35.
Rather than more tinkering, the November 26th statement should launch a formal IR35 roadmap or consultation to simplify and clarify employment status once and for all.
Limited company contractors we advise want two simple things on the off-payroll working front:
- Fair IR35 assessments: based on genuine working practices, not blanket "inside IR35" decisions.
- Resolution of the 'zero-rights employee' issue: this is where contractors get taxed like employees, yet still receive none of the benefits or protections of employment.
A clear and proper IR35 or employment status roadmap as part of Autumn Budget 2025 could set out how employment status tests will be modernised; how small businesses can apply them consistently, and how HMRC will handle IR35 status disputes more transparently.
For contractors, such a roadmap would restore trust in a system that too often feels one-sided and opaque.
What's the likelihood of an Autumn Budget IR35/employment status roadmap on Nov 26th?
Medium. The government is unlikely to reopen IR35 legislation for review immediately, but it might use autumn's budget statement made to the House of Commons to announce a review or consultation on employment status.
A full overhaul in this area is unlikely before the next general election cycle, but early signalling could still bring much-needed reassurance.
3. The chancellor should announce a 'soft landing' for Making Tax Digital
HMRC's Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), due to begin from April 2026, is a huge administrative change for self-employed individuals.
Let's be clear, though. Most contractors won't be caught by MTD for ITSA. If you operate through a limited company, you likely already report under MTD for VAT. And if you're working via an umbrella company, your income is taxed through PAYE.
Beware April 2027, if you're a landlord or sole trader
Where it does apply is among sole traders and landlords with more than £50,000 in combined income (reducing to £30,000 from April 2027). But even contractors who aren't directly in scope will see the effects, as accountants and digital record-keeping systems adapt across the sector.
That's why the Autumn Budget 2025 speech, statement, or full report by HM Treasury, should confirm a 'soft landing' under the new penalty regime.
Give us time to fix MTD ITSA teething problems, please chancellor
Or at least, it should introduce a delay to enforcement until taxpayers and agents have completed a full reporting cycle using MTD software. This would give time to fix teething problems before HMRC penalties start applying.
The government should also open the long-promised 'digital-exclusion exemption' process for those who genuinely cannot use digital tools.
A soft landing would show fairness and common sense — supporting compliance rather than punishing early mistakes.
What's the likelihood of Rachel Reeves delivering an MTD ITSA soft landing?
Medium to high: HMRC has not formally announced a soft landing, but tax bodies such as the ICAEW expect the government to introduce one. With MTD's complexity and new penalty rules still being finalised, a short transitional period seems a practical necessity.
TL;DR: Top 3 things contractors need from Autumn Budget 2025
Contractors don't expect miracles from next month's Autumn Budget statement — but they do deserve clarity, fairness and a genuine commitment to making compliance with HMRC and other government bodies workable.
A soft landing for MTD, a commitment to thaw frozen tax thresholds, and a credible plan to simplify IR35 or employment status would show that the government finally understands what the UK's flexible workforce needs to thrive.
