By treating flexible contractors as tax-avoidance risks, Westminster has created a compliance bottleneck that is choking Britain’s freelance economy. Today, UK independent professionals find themselves stuck between opposition deregulation promises and a Treasury guarding its tax receipts. Here is why IR35 is back at the top of the agenda and how a few workable solutions could finally break the deadlock
Additional reporting by Katherine Steiner-Dicks
If you’ve been contracting for a while, you’ll know the drill. It goes something like this: a politician promises to fix IR35, you get your hopes up and then either nothing happens, or it gets unfixed a few weeks later.
So when Shadow Chancellor Andrew Griffith pledged the next Conservative government would scrap and replace IR35, saying it has “crushed the dreams of so many self-employed people” — and Nigel Farage went further, calling the rules “ridiculous” and accusing them of “stifling innovation” — the reaction from the contracting community wasn’t celebration.
It was a familiar and collective eye-roll.
We’ve heard this before
It’s a promise hard to trust. It was the Conservatives who built the current mess. Off-payroll rules landed in the public sector in 2017 and expanded to the private sector in 2021, both under Tory chancellors. Then in September 2022, Kwasi Kwarteng announced he’d repeal the reforms entirely. Contractors thought Christmas came early, only for Jeremy Hunt to reverse that decision in Grinch-like fashion 24 days later.
Simon Corney of Connected IT captured the latest mood following Griffiths’ announcement in a LinkedIn post:
“I don’t recall seeing as much optimism and excitement… since the same party declared in September 2022 that the IR35 reforms… would be repealed – only to promptly repeal the repeal!”
Yet, he still sees Griffith’s political promise as a step in the right direction for contractors and hiring companies:
The IT contracting sector that I have worked in for 20+ years could certainly use some optimism to help lift it out of its current state, so here’s hoping that meaningful change is coming.
Business strategist Jonathan Delicata responded in a thread of comments that were spurred by Corney’s post,
All they have done is pushed work from contractors to consultancies who per head charge 50-100% more to the end client…Nope, sorry, after that betrayal I will never vote conservatives ever again, regardless of what spin they come out with.
Even Seb Maley, CEO of contractor insurer Qdos, who broadly welcomes the intent, flagged the irony: “It won’t be lost on anyone that it was the Conservative Party that reformed IR35 in recent years, creating many of the problems contractors experience today.”
The maths makes it academic anyway
Here’s the bit that matters more than any speech: none of this is going anywhere soon. Labour holds a working majority of over 160 seats. The Labour Party forms a majority government. Their current working majority at the time of writing is 166. This takes into account the non-voting Speaker and their deputies, and non-sitting Sinn Féin MPs. The Conservatives have around 120, and Reform UK sits firmly in single digits.
Labour and the Treasury have shown zero appetite for touching the current rules. Off-payroll working brings in an estimated £4 billion-plus a year — money the IPSE says the Treasury sees as “far too critical to public finances to give up,” even though more than 80% of independent professionals feel the system “penalises genuine enterprise.”
Corney makes a point about who actually loses out while things stay the same. “Large consulting firms often use offshore delivery models, so the UK Treasury receives nothing in tax revenue.”
Two decades in IT contracting have shown him how badly the sector needs a change. He’s just not holding his breath.
It always comes back to Employer NI
Fiona MacCarthy FCA, an interim finance specialist with over two decades of professional experience across limited company, direct payroll, and umbrella arrangements, described the administrative strain:
“The taxation of contractors is mentally exhausting, stressful and time-consuming.”
MacCarthy points out that the fundamental financial tension across alternative operating structures rests on Employer National Insurance (ENI):
“A key difference in alternative operating models (Ltd v Payroll v Umbrella) is the total Employer NI. HMRC /Treasury will want to maximise this, whilst we as contractors want to see the lowest £ amount. The other taxes tend in total to broadly balance out these days.”
Reflecting on past political commitments, MacCarthy’s stance could hit home for many contractors:
Politicians will bait and lure us, and then gut us, when it suits. ‘Contractor beware’ is my moniker.
So what would actually fixing it look like?
Josh Toovey, Head of Policy and Research at IPSE, highlighted three conventional routes Griffith could take in a recent opinion piece for Contractor UK
- Old IR35: Returning to Chapter 8 of ITEPA 2003, putting status determination back into contractors’ hands (the short-lived 2022 mini-budget pledge)
- OPW light: Keeping the Chapter 10 framework where hiring clients make the determination, but softening penalties and red tape
- New IR35: Creating a brand-new statutory definition for “genuine self-employment.”
What’s a 4th option that could keep everyone happy?
Arguably, all three still leave HMRC, clients and courts arguing over the same subjective employment tests that cause the confusion today.
The way out of this IR35 mess is to start with proper compromise: creating an official Class 5 Business Levy for PSCs.
Here is how it would work.
Limited companies pay a flat 6% to 8% levy on net company profits before taking dividends. In exchange, HMRC gives our businesses complete legal immunity from IR35 and off-payroll reviews.
Why 6% to 8%? It meets the Treasury halfway on Employer NI without ripping us off. We receive no client-funded holiday pay, sick pay, or redundancy cover. We pay for our own kit, cover our own downtime between projects, and take on all the commercial risk. A lower flat rate reflects that real-world bargain.
This would kill off the blanket contractor bans. End-clients wouldn’t face backdated tax bills, so they’d have no reason to force everyone into high-fee, non-compliant umbrella schemes. We’d keep our limited companies, claim legitimate business expenses, and extract profit cleanly without paying umbrella margins and Employer NI off our gross rate.
To qualify, we shouldn’t have to jump through arbitrary hoops like proving we juggle three or four clients at once. If you are brought in to rebuild a bank’s core system or lead a nine-month digital transformation, that project takes all your bandwidth. Treating someone as a disguised employee simply because they are dedicated to major milestones for one client makes zero sense. It just hands work to large consultancies that often offshore delivery anyway, leaving the Treasury with zero revenue.
Instead, qualification would come down to genuine commercial terms. You:
- Get paid to deliver milestones rather than just logging hours
- Responsible to fix mistakes in your own time and at your own expense
- Provide your own tools and specialised software
- Hold a genuine right of substitution, with any substitute providing verified right-to-work status to the end client
To keep things clean and stop companies shifting permanent staff onto this lower rate, an automatic rule would prevent contracting back to an immediate former employer for at least twelve months.
HMRC gets guaranteed, litigation-free revenue; clients eliminate their risk entirely; and independent contractors get their businesses and peace of mind back.
The catch: you can’t just declare yourself self-employed
Dave Chaplin of IR35 Shield has pushed for years for the right of two parties to “choose to engage on a commercial basis as they wish, and not have the relationship mischaracterised and interfered with by the state.”
His verdict on the current rules: “We have 5 chapters of tax avoidance legislation, and it needs ditching and replacing with something more coherent.”
Employment lawyers aren’t convinced choice alone solves anything. Rebecca Sealey of the Employment Status Forum makes a point in a LinkedIn post, “Calling someone self-employed does not make them self-employed.” Status, she argues, is determined by the actual working relationship, not a label.
Sealey lists six questions any real reform has to answer:
- Whether choice will be decisive or merely one factor
- How genuine self-employment will be distinguished from imposed false self-employment
- Who will make the determination and carry the tax risk
- Whether contractors will have an independent right of appeal
- What will happen to the off-payroll working rules
- Whether those taxed as employees will finally receive corresponding employment rights
On that last point, Sealey adds, “Replacing IR35 without addressing that mismatch risks changing the name of the regime rather than solving the underlying problem.”
Ok, what about this then?
As we know, UK contractors face an absurd double standard. HMRC can tax you as an employee under IR35, yet employment law treats you as an outsider with zero rights.
That split happens because tax rules sit under ITEPA 2003 (Chapter 10), whilst workplace protections sit entirely under the Employment Rights Act 1996.
When the House of Lords Finance Bill Sub-Committee dug into this, they called out the injustice plainly, warning that the rules leave contractors as “zero-rights employees”.
The answer borrows from the government’s own Taylor Review: Tax Equals Rights.
Here is how that plays out in practice:
“Inside” call triggers genuine right
If a client or agency insists an assignment is inside IR35, that decision automatically leads to statutory worker status by law. You receive accrued paid holiday (under the statutory 12.07% rules), employer pension contributions and statutory sick pay. If a client insists on employee taxes, they take on employer duties.
End passing down employer taxes
Shifting Employer National Insurance and the Apprenticeship Levy onto your agreed day rate becomes an unlawful wage deduction under Section 13 of the Employment Rights Act 1996. If a role is advertised at £500 a day, that is your actual gross pay. The client or agency must fund employer-side taxes on top, exactly as they do for regular staff.
Blanket bans disappear
Clients issue blanket inside-IR35 bans right now because they carry no financial downside. Contractors absorb the Employer NI and payroll fees and the client sidesteps risk. The moment an inside determination forces a client to fund real benefits and employer taxes, defensive blanket bans stop overnight.
Chapter 10 is neither repealed nor scrapped
It is ring-fenced and neutralised. A statutory carve-out exempts any contractor paying the Class 5 Levy who meets the commercial checklist, bypassing CEST and client assessments entirely. Chapter 10 stays on the books so it can still catch blatant disguised employment, but with an automatic condition: any client that deems a role “inside” must fund statutory employment rights and pay employer taxes out of their own pocket.
Arguably, many clients will naturally prefer hiring genuine project specialists through their PSCs under the Class 5 Business Levy proposal to avoid those employment overheads.
The end result? Independent contractors keep their commercial freedom, workers in controlled roles get real protections and unnecessary payroll intermediaries lose their grip on the market.
What to watch next: Labour’s next move
With the Conservatives promising a replacement and Reform demanding outright abolition, IR35 is back in the political spotlight. Seb Maley’s take: “The silence would be deafening if the Chancellor chooses to ignore the issue altogether in next month’s budget.”
Until any party puts forward a costed, legally credible plan that resolves the Employer NI question, treat these promises the way you’d treat a client who says the invoice for the third time this month is “definitely getting paid this week.”
Where do you see things going? Has anything here changed how you’re planning for next month’s budget, or are you filing it under “believe it when I see it”? Drop your take below (especially if you lived through the 2017 or 2021 changes and have scar tissue stories to share.)
DISCLAIMER: All quotes above reflect the personal views of the individuals named, drawn from their public statements and LinkedIn posts. Nothing in this piece is intended as tax, legal, or financial advice. Speak to an accredited adviser before making decisions about IR35 or your contracting structure.