What the tax changes announced in the 2022 mini-Budget mean for self-employed workers

Chancellor Kwasi Kwarteng has pledged to simplify so-called IR35 rules, which affect self-employed individuals operating through a company, in his mini-Budget.

Recent reforms had moved to stop freelancers effectively acting as employees while working through an intermediary – often their own private companies.

However, these reforms proved controversial, making it more difficult and expensive for businesses to secure freelance work.

The reforms will now be reversed. Here is everything you need to know.

What is IR35?

HMRC introduced IR35 in 1999. The aim was to clamp down on individuals working in a manner similar to an employee, but under the guise of a limited company.

Freelancers operating through a private company generally pay lower income tax and don’t have to pay national insurance.

Originally, it was up to individuals to assess whether they fell under IR35. However, since reforms in 2017 and 2021, the onus has been on businesses and public authorities to decide the status of their contractors.

The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.

You may be affected by these rules if you are:

  • A worker who provides their services through their intermediary (normally their own private company);
  • A client who receives services from a worker through their intermediary;
  • An agency providing workers’ services through their intermediary.

If the rules apply, income tax and employee national insurance contributions must be deducted from fees and paid to HMRC. Employer national insurance contributions must also be paid.

How are IR35 rules changing?

In his mini-Budget the Chancellor said that workers, rather than businesses or public authorities, would once again be responsible for determining their employment status.

He said: “To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.

“So, as promised by the Prime Minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

More from Budget

The change means self-employed workers providing their service through their own companies will again be responsible for paying the appropriate amount of tax and national insurance contributions. 

Martin McTague, national chair of the Federation of Small Businesses, said: “The Chancellor has done the right thing in getting rid of IR35.

“Scrapping the poorly thought-out, unnecessary and burdensome IR35 rules that restricted small businesses’s and self-employed people’s ability to do the work they need is a very positive move.”

However,Richard Murphy, professor of accounting practice at Sheffield University, said on Twitter: “The tax abuse that IR35 tackled is now to be encouraged.

“This is a fiscal statement for the tax abuse industry. Alongside tax haven investment zones, this is a field day for tax-abusing accountants.”

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