IR35 is being scrapped: What it means for self-employed trade workers

What does the mini-budget 2022 tax changes mean for trade businesses? According to the Chancellor, workers will be ...

What does the mini-budget 2022 tax changes mean for trade businesses?

According to the Chancellor, workers will be responsible for determining their employment status once more, not businesses or public authorities. Chancellor Kwasi Kwarteng pledged to simplify the so-called IR35 rules that apply to self-employed individuals such as plumbers, electricians and more working through a company in his mini-Budget.

The recent reforms have made it impossible for contractors to act as employees, even though they work through intermediaries - which can often be their private companies.

These reforms were controversial and made it more difficult for businesses to get contract work.

These reforms will now be reversed. This is all you need to know.


Does this affect you?

If you are a self-employed tradesperson, the answer is probably not. Most trade companies have many customers and are outside of IR35’s reach. However, if you work for a single company, perhaps a house builder, and have your own company, it may apply.


What is IR35?

HMRC introduced IR35 in 1999. It was designed to curb individuals who behaved in a similar way to employees but with the disguise of a limited company.

Private-sector contractors generally pay less income tax and are exempt from the need to pay national insurance.

Initially, individuals had to determine whether they were covered by IR35. Since reforms in 2017 & 2021, it has been up to the end client to determine the contractor status.

These rules are applicable if you provide your services to a client via a company (your company is called an intermediary). If you were only working for a single client you should pay tax and NI as if you were directly employed, your client should also pay employers' NI contributions. 

Sound confusing? It is, and this is why the government were keen to tidy these rules up.


What are the changes in IR35 rules?

The Chancellor stated in his mini-Budget that workers would again determine their employment status.

He stated that he would start by eliminating unnecessary costs for businesses to make the system simpler. Many businesses have found that reforms to off-payroll work add unnecessary complexity and expense.

The change means that self-employed workers who provide their services through their own businesses will be responsible for paying the correct amount of tax and national insurance contributions.

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