OPINION
To build a case for IR35 replacement, we must look at the net economic benefit rather than just the tax yield. While HMRC celebrates success, independent research suggests massive tax leakage elsewhere
A LinkedIn post I published has reignited a debate, bringing the human cost of IR35 and Off-Payroll Working (OPW) rules back into the public eye.
The post’s discussion gained momentum following a response to Rupert Lowe’s Restore Britain party and its pledge to “scrap IR35.”
However, the reality is far more nuanced than a campaign slogan. Simply deleting the legislation without a replacement framework could invite chaos, and the Treasury is unlikely to surrender an estimated £1.2 billion in annual revenue without a fight.
That is, unless that gain is actually proven as an overall loss in tax revenues, a trigger for unemployment and less income for British households.
The problem with politics
Rebecca Seeley Harris, a UK specialist in employment status, argues in the post’s comments that politicians often miss the mark by focusing on IR35 (Chapter 8), which technically now only applies to small business exemptions.
“The greatest difficulty has been ‘Off-Payroll Working’ or OPW (Chapter 10), the reform introduced to the private sector in 2021,”
Seeley Harris explains how it would be helpful if politicians actually understood the mechanics of what they are pledging to fix.
It would be good if the politicians actually knew what they were talking about.
-Rebecca Seeley Harris, a UK specialist in employment status
As we move through 2026—a year of dreadful employment figures—thousands of freelancers are sharing personal stories of how IR35 reforms and Off-Payroll working rules have devastated their livelihoods. Can this human testimony finally shift the mindset of HMRC and politicians, achieving the change that years of industry lobbying could not?
The human cost of IR35 and OPW
High-level budget debates often sanitise what is, for many, a devastating blow to their livelihoods. The hundreds of professionals sharing their stories, insights and experiences on the social media post reveal a workforce trapped in a shall we say, financial lottery.
The feedback from the LinkedIn post shows just how much Britain’s freelancers feel systematically let down at a time when the economy desperately needs their agility.
So many great comments that show just how damaging IR35 Off Payroll has been to peoples livelihoods and businesses. Hopefully some of this will reach the politicians.
–James Brown, HSE Consultant, Energy setcor
These are not abstract policy concerns; they are real financial consequences felt by individuals, families and companies across the country. Here is only a sampling of the comments:
I talked to a recruiter yesterday who said they have shifted all their contract work to Poland due to IR35. Employing UK contractors just isn’t feasible anymore. He was happy to offer me work if I wanted to take what the Polish developers were accepting. None of the other contractors I worked with are around anymore. Two of them went into liquidation, a couple of others moved countries, and one of my close friends lost his marriage and his house. The effect has been devastating.
I was a contractor from 1994 to 2007 and again from 2015 to 2019. The stress of dealing with HMRC and the changing IR35 rules was too much. The reduction of income and a very large tax bill put me under severe stress and led directly to the breakdown of my marriage in 2010 and left me in further debt as I was forced to sell our home with £80k of negative equity.
I am now unemployed but the thought of going back to contracting as an option frankly terrifies me.
My business was hit very hard. After developing 20 years expertise in two prime industries, the entire market went inside or offshore, so I had to start from scratch. I don’t think the business will ever fully recover. Fixing this isn’t about simply uninstalling IR35 because clients were stung and have all changed their procurement strategy away from small businesses. For any change to make a difference, it needs to start with building confidence that it is safe for them to procure our services. I would start my creating a mechanism for recognising businesses/directors that have a track record of demonstrating good compliance.
It shrank the pool so much that it became impossible to swim in it. I remember when HSBC at Canary Wharf was filled to the rafters with contractors; after the latest upheaval [2021 if I recall correctly], it all went to Cap and Accenture, costing HSBC millions more and leaving perfectly able and experienced specialists out of roles.
I make videos for large orgs now but it is delivered on a commission-basis and has nothing to do with contracting or IR35. Frankly? They are actually missing out enormously on what was my core skillset, change and transform within enterprises, honed within the same consulting they are now paying through the nose for. I came in far cheaper but delivering to the same standard.
The UK’s flexible workforce: A snapshot
To understand the scale, we must look at the segments of the UK workforce currently under pressure:
| Category | Population | Impact |
| Total Self-Employed | 4.38 million | Approx. 13% of the total UK workforce |
| Solo Self-Employed | 4.27 million | Individuals running businesses without employees |
| Highly Skilled Freelancers | 2.05 million | Technical, legal, creative, and managerial specialists |
| Economic Contribution | £366 billion | The total contributed by solo workers in 2024/25 |
Net economic loss: the hidden data we should be talking about
To build a compelling case for changing the Off-Payroll Working (IR35) rules, it is essential to look at the net economic benefit rather than just the tax yield. While HMRC reports significant gains, a data-driven analysis reveals substantial hidden losses that undermine the UK’s total tax take.
The following analysis is based on the HMRC 2025 Impact Report, industry data from IPSE, and independent sector research.
The HMRC success narrative: £1.4bn – £1.5bn / year
HMRC claims the reforms are a success, generating £4.2 billion between October 2019 and March 2023
- Target revenue: They estimate an average tax increase of £10,000 per worker annually.
- Worker impact: Approximately 130,000 contractors were moved to PAYE following the 2021 private sector reform.
The hidden losses: Tax leakage analysis
To get a relatable figure, we must subtract the tax streams that disappear when a contractor is forced “Inside IR35.”
❌Corporation tax & dividend tax
The loss: Previously, a PSC earning £100,000 paid roughly £19,000 in CT and £8,000–£12,000 in Dividend Tax.
Data point: HMRC admits that roughly 45,000 fewer PSCs were formed than expected due to the reform. This represents a massive loss in small business tax that is not fully recovered by the PAYE transition.
❌The VAT black hole in finance & healthcare
This is arguably the most significant blind spot. In sectors that cannot reclaim VAT (banks, insurance, charities), the 20% VAT charged by a PSC was pure profit for the Treasury.
For example, based on an average day rate of £600, a banking sector contractor would have generated approximately £27,000–£30,000 per year in VAT. With an estimated 26,000 contractors having left the banking sector due to these rules, the Treasury is losing roughly £700 million per year in VAT from just this one sector.
❌Economic output & offshoring
Brain drain: 24% of highly skilled contractors now intend to seek work overseas to escape IR35.
The cost: When a project moves to Poland or India to avoid IR35 risk, the UK loses 100% of the Income Tax, NICs, VAT, and Corporation Tax. Independent estimates suggest the UK economy loses nearly £100 billion in total output and welfare impact due to IR35-driven offshoring and SME collapse.
Summary of Economic Impact (Per freelancer at £500/day)
| Tax Stream | Outside IR35 (PSC) | Inside IR35 (PAYE) | Net Gain/Loss to Treasury |
| Corp Tax | £25,600 | £0 | -£25,600 |
| Dividend Tax | £16,400 | £0 | -£16,400 |
| PAYE & NICs | £0 (Small Salary) | £51,260 | +£51,260 |
| VAT (Exempt Client) | £24,000 | £0 | -£24,000 |
| TOTAL (Finance Sector) | £66,000 | £51,260 | -£14,740 LOSS per worker |
HMRC’s tax take is probably eclipsed by what they lost, particularly with the amount they lost in VAT (before you get into the rest) and the human costs particularly given ripple effects (economic and social). More importantly, IR35 has interfered with the common law right to contract.
-Anita Dorothy Millar, Risk & Policy expert on regulatory change
Great Britain’s workforce is at breaking point
When will today’s tax policy architects and politicians finally look beyond the immediate tax yield to see the bigger picture? The current trajectory is a direct threat to Great Britain’s economic growth, its global competitiveness, and the standard of living for millions.
- Westminster must treat the self-employed voting population as the agile business community it is, not as a tax liability to be managed into submission.
- As mass redundancies continue thanks to agentic enterprise strategies and hiring freezes take hold due to skyrocketing employment costs, many of the UK’s highly skilled workforce will have no choice but to go freelance to survive. The alternative? Claiming unemployment or moving the family overseas.
- By maintaining the current IR35 and Off-Payroll Working (OPW) rules, HMRC is effectively orchestrating a national drain on talent. And that was never its intention. The Treasury is year on year losing the total economic contribution of thousands who have been forced onto PAYE, opted for early retirement, or simply emigrated to more hospitable markets. This is to say nothing of the projects—and the associated tax revenue—being offshored to avoid the administrative burden and risk of UK compliance.
Lastly, what makes things more challenging for voters is the fact that the political parties campaigning to scrap IR35 (at the time of writing) are also promoting far-right political agendas not everyone agrees with.
For example, data from the Nuffield Politics Research Centre (2025/2026) suggests that moving from economic security to insecurity increases the probability of a voter defecting to an insurgent party like Reform UK by over 5 percentage points.
- Economic insecurity is now three times more likely to drive a vote change than anti-immigration sentiment.
- For a contractor facing a 20-30% drop in take-home pay due to “Inside IR35” determinations, a party’s stance on tax reform often outweighs disagreements on their broader social or environmental manifestos.
IR35 and OPW are more than just costly inconveniences to the self-employed and the businesses that want to hire them. They are actively undermining the foundations of entrepreneurial Britain.
For any government administration that refuses to change course, ignoring this systemic collapse isn’t just a policy failure—it is political suicide.
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there is no case for IR35 – it is a tax on choice, which unfairly penalises skilled workers that understand their value
The Treasury’s war on freelancers is choking economic growth. Access to a flexible skilled workforce is essential if businesses are to take the risks needed to grow.
It been a sad change. I have still not been able to recover from the change after over 20 years of operating under OPW rules. It is really bad. I am in debt and the Revenue keeps piling it on. Is this what we have come to as a nation??
The people who make these rules don’t think of the innocent child and others that are affected. The just think about the money. Its a really bad situation.
spot on, once again unintended consequences ignored to support political point scoring. I retired 4 years early due to the private sector changes which resulted in turmoil within the project I was supporting at the time. There was no Suitably Qualified and Experienced Person available to replace me, placing huge strain on the company’s personnel left behind to cover the resultant gap. The major defence programme in question is now, 5 years on, dogged by time and cost overuns. How short sighted can government possibly be? At least 1 policy that Liz Truss got right.
Thank goodness someone has at last run the numbers to show the whole treasury revenue. I always paid 4 times as much in VAT to the treasury as tax (Corp + Dividend).
IR35 meant working onsite anywhere in the country became prohibitively expensive, because the cost of travel and accommodation was not tax deductible, therefore getting the right talent to areas of the country to work took it’s toll too.
I dont think contractors make big vote banks, so that a political party would listen. That whole exercise was based on basic human emotions of envy than any logic!
IR35 has ended my 25-year career in healthcare. The contracts are 100% inside, and the rates are all capped to levels below what they were in 2008. It’s impossible to pay for travel and accommodation with such appalling pay, with the expectation to then shoulder all the work-generated expenses too. I’ve taken some menial work paying less than minimum wage just to survive. I’ll point out that I now don’t earn enough to pay any tax. How is this situation advantageous for anyone? HMRC have really shot themselves and everyone else in the foot.
25 years of paying around £20-25k in corporation tax, another £10k+ in Personal tax and of course VAT contributions along the way too. That has been followed by two years of absolutely nothing. HMRC have lost out, and so have I
Am I motivated to do “permie” work for a third of what I have commanded all my career? Not a chance, I will rot on benefits before I agree to that.
Sunak’s connections with InfoSys need looking at too, this policy seems to benefit them massively,