There's a certain resignation doing the rounds that IR35 reform isn't "going away" in 2025-26.
A wasted opportunity
Maybe that resignation explains why the business community's submissions to the chancellor for her November 26th fiscal statement don't include a rethink of the off-payroll working rules. Not every Autumn Budget 2025 wishlist, of course, but most.
And I think it's a wasted opportunity, because the case for repealing IR35 reform is strong, even compelling, writes Teodora Dimitrova FCCA, practice manager, director and owner at Chart Accountancy.
Why IR35?
The IR35 legislation was first introduced in 2000 to tackle 'disguised employment,' as HMRC put it. The intent was to ensure fairness in taxation.
But the reality for contractors and businesses since IR35's introduction has been far from straightforward.
The divisive Intermediaries legislation (to give IR35 its full name) has been a topic of heated, unnerving debate for 25 years.
So much so that for each of those 25 years, when the business community heads towards the annual budget and spring statement, there's a fear of IR35 being tweaked again.
The perennial IR35 small company exemption question
The fear is understandable, as under successive governments, the UK has seen band-aids clumsily applied to the sticking plaster that is the framework of 2000.
On that note, might a revenue-hungry Rachel Reeves next month announce a consultation on removing the 'small company' exemption under the OPW rules? That removal was billed as an "obvious next step" for HMRC on the eve of Spring Statement 2022.
Unfortunately, once the contractor community makes it through every nervy budget, IR35 still fails to actually 'work' for hiring businesses, agencies, and limited company workers.
IR35's 2017 and 2021 updates haven't made the rule workable
We've had two-plus decades of this clear indication that, after so many attempts at looking at IR35 or trying to make it work, the IR35 legislation is unworkable.
In terms of the biggest of those 'attempts,' the IR35 reforms of 2017 and 2021 have been the most widely disliked change in contractor tax rules that I can remember. The two frameworks, the Off-Payroll Working (OPW) rules, have had adverse consequences for all parties.
And I include HMRC in "all parties." Indeed, subsequent to the OPW legislation's introduction in 2017, the calls for (and release by HMRC of) detailed guidance on 'contracting out,' and the calls for (and release by HMRC of) an "offset" mechanism confirm just how not thought-through IR35 reforms were.
Both House of Lords and NAO have criticised IR35 reform
The House of Lords has concluded much the same (the peers even warned that 'OPW could eliminate contracting by stealth').
Afterwards, a similar thumbs-down was given to IR35 reform by the NAO.
The National Audit Office (NAO) also found it "highly likely" that public bodies made their costly OPW mistakes precisely because of HMRC's approach to the rules. Ominously for the private sector, it now stands at several hundred million pounds worth of public sector mistakes.
Meanwhile, I've lost track of how often CEST, the government's tool to test IR35 status ("of limited assistance" according to the Lords), has needed to go in for updates. That's the same Check Employment Status for Tax tool that was used by many of those government departments that have had to pay millions to HMRC for getting OPW wrong.
Unintended consequences
So, wherever you tend to look in the IR35/OPW 'space,' I arrive at the same conclusion — that it's time to scrap IR35 reform and replace it with a new piece of legislation, suitable to meet modern working patterns.
As someone who works closely with both clients and contractors across the UK, I have witnessed firsthand the challenges and distressing unintended consequences that the off-payroll working rules have imposed.
It really is time for the UK to reconsider the rules governing these enterprising workers, as IR35 reform is doing more harm than good.
A burden on flexibility
The UK economy thrives on the flexibility and expertise that contractors bring.
Businesses can scale quickly, access specialist skills, and innovate without the long-term commitment of permanent hires. Contractors, in turn, enjoy the autonomy to manage multiple engagements, upskill, and contribute where they are most needed.
IR35 reform, however, has disrupted this balance. And the damages are increasing rapidly, because markets now evolve faster than they did 20 years ago.
Blanketing, quasi-employment and the end of truly flexible labour
Many large organisations seek to avoid HMRC compliance risks and have therefore chosen to blanket all contractors as "inside IR35," regardless of the actual nature of the engagement.
Such blanketing has forced limited company contractors to pay (higher) tax rates similar to employees, but without securing the same employment law rights. So these 'contractors' receive no extra protections in return for having the financial benefit of operating through a limited company eroded. It's quasi-employment nobody wants.
The result of IR35 reform's main rub? Skilled freelance professionals are leaving contracting altogether, settling for an umbrella company (which they are required to become the employee of), or they're relocating overseas.
Flexibility, the very lifeblood of modern work, is being strangled.
Complexity and compliance costs
IR35 is not merely a matter of ticking boxes.
Determining employment status is complex and full of ambiguity.
HMRC's tests, though guided by case law, are often interpreted inconsistently.
As accountants advising limited company contractors (also known as PSC contractors), we have seen that the fear of being incorrectly classified has led to reduced opportunities and a climate of uncertainty.
The financial and administrative burden extends beyond contractors themselves.
Many companies are now reluctant to engage highly skilled professionals, fearing the potential liability if HMRC disagrees with their Status Determination Statement. Ironically, this leads to less efficient project delivery, increased costs, and hindered innovation — the very outcomes that the IR35 reforms intended to prevent.
A missed opportunity for fair taxation
The underlying principle behind IR35 of ensuring fair tax contributions has long been debated.
However, the current approach of the 2017 and 2021 frameworks is unquestionably blunt and counterproductive.
A better solution would involve simplified reporting mechanisms and clearer guidelines that recognise the legitimate differences between employed and self-employed work. Tax fairness should not come at the expense of the contractor community and the broader economy.
The economic case for repealing IR35 reform
Contractors are vital to the UK economy.
Contractors contribute significantly to the UK's GDP. In fact, according to figures provided for this article by IPSE, the solo self-employed contributed £366 billion to the UK economy in 2024.
Individual contractors deliver projects across the public and private sectors, support innovation, and fill critical skills gaps in employers' workforces.
By imposing on them and their engagers a set of onerous requirements and risks, the OPW rules threaten this once-nimble workforce, creating shortages and driving skilled professionals abroad.
What would repealing IR35 reform achieve?
Repealing IR35 reform would head off that reality.
A repeal of the 2017 and 2021 frameworks would also restore confidence, attract talent, and let UK businesses access the expertise they need without fear of HMRC penalties.
The repeal of IR35 reform was an official proposal only a few budgets ago, when the government of the day described the OPW rules as an 'unnecessary cost and complexity for many businesses.'
The AI-driven global economy isn't waiting for UK ministers to cotton on to IR35's damage
The trend of a globally mobile workforce is accelerating, especially with AI-driven work models.
We have witnessed contractors leaving the UK and re-establishing their consultancy businesses abroad because it makes financial and professional sense.
The current UK tax system effectively forces highly paid contractors to work inside IR35, accept work via an umbrella company (which remain unregulated) or leave the country altogether. Too many are choosing the latter, and we know this because we've advised them on the tax-side about making their exit from the UK.
The IR35-induced UK brain drain
At the same time, other lower-tax-rate countries are actively attracting freelancers and independent consultants with "nomad visas."
Yet the UK offers no competitive equivalent.
Therefore, any further delay in scrapping IR35 reform risks not just additional lost tax revenue but also brain drain. The UK could lose a swathe of highly skilled professionals, whose absence will be costly to reverse. Attracting new talent or convincing former contractors to return will be expensive and challenging.
Yet this potential exodus is entirely avoidable.
OPW makes offshore, overseas cases compelling
If the government doesn't listen and fails to scrap IR35 reform, highly skilled contractors will continue relocating overseas, taking their earnings and expertise with them.
However, it is not only contractors who are looking abroad. Large businesses are directing their hiring resources offshore, too. Such organisations tell me that they want to continue to hire flexible talent but avoid IR35 compliance risks, and they can do so by turning to cheaper, offshore workforce solutions.
This is not only a risk to tax revenue but also a risk to the UK's talent pool. Losing these skilled professionals will be costly, as the government will ultimately need to invest heavily to regain confidence, attract their return, and recruit afresh. It risks turning what I hope is a delay in scrapping IR35 reform into a very challenging and expensive process.
TL;DR: Why Autumn Budget 2025 should axe IR35 reform
Next month's Autumn Budget 2025 is a chance for policymakers to do more than just listen to those affected by the harmful OPW rules. Contractors, accountants, recruiters, and business leaders all agree — IR35 reform has become a solution searching for a problem.
Chancellor — please repeal it.
Replace IR35 reform with a system that is clear, fair, and flexible.
We need a system that works for all stakeholders, including HMRC, businesses, the government, and individual taxpayers like contractors.
Repealing the off-payroll working rules would remove unnecessary complexity, reduce compliance costs, and restore the freedom that is critical for both contractors and the UK economy.
