HMRC sheds new light on the impact of IR35 reform

HMRC sheds new light on the impact of IR35 reform

Another financial year worth of data makes for interesting reading – but what’s the story?

According to HMRC, the introduction of the off-payroll working rules – or, IR35 reform – in the private sector boosted the Treasury’s tax take by a massive £4.2bn up to the end of the 2022/23 tax year.

First published in December 2022, the report was updated in late February 2025 to include information from the 2022/23 tax year, the latest available.

As it happens, we covered the report shortly after it was first released, around 18 months after the roll-out of IR35 reform in the private and voluntary sectors.

At the time, we said it failed to reflect the reality of the situation. This situation was that many businesses had struggled to adapt to the changes, meaning contractors were subject to everything from blanket bans to and de facto inside-IR35 determinations.

So, what’s changed in the time since? Read on to find out…

The latest facts and figures

- Tax receipts increase by £4.2bn

HMRC is largely of the view that more tax take shows that the reforms have been a success. Many others, however – namely contractors – have a different view.

This figure is comprised of income tax, National Insurance Contributions (NICs) and Apprenticeship Levy payments. It also represents roughly a £10,000 annual tax increase per contractor affected by the reforms….

- The overall number of workers affected

… who are now estimated to number around 280,000. This is, HMRC says, “broadly in line” with previous estimates. But a staggering 110,000 are estimated to have moved permanently onto the payroll of other companies in 2022/23 alone.

HMRC groups these workers into:

• Those who have “become an employee of another organisation” which is not their own limited company
• Those “reported as being deemed as an employee for tax purposes by their client” in roles inside IR35
• Those “deterred from entering or returning to work” through their own limited company

But all of this comes with a caveat. Because there’s “no legal definition of a PSC, it’s not possible to identify directly…. [those who] may be affected by the reform”, according to HMRC.

That doesn’t mean the estimate isn’t credible. The figures come from HMRC’s own data and are as close as the tax authority can get – it’s just an extra bit of context.

- Off-payroll reforms acting as deterrent to new incorporations

HMRC also believes “there has been a reduction in the number of new PSCs [personal service companies] being formed”. However, this is something which is only “partly” attributed to the off-payroll working rules.

Around 45,000 fewer personal service companies were formed following the introduction of reform up until March 2022. HMRC thinks these would-be contractors instead chose “to work in a different way… they will have remained, or started, working as employees”.

- Total employments for PSC have increased since reform

Sure to ruffle a few feathers, the report also estimates “more PSC workers have been unaffected by the reform than affected”.

Added to this, HMRC is of the opinion that “total employments across all types of work for PSC workers have increased when comparing a point in time before the reform to a point in time after the reform.”

Put differently, there are more contractors working via their PSC after reform, than before. Maybe the boldest claim yet?

The view from Qdos

Our CEO, Seb Maley, certainly thought so…
 
“To say that there are now more opportunities for contractors following the changes is nonsense.”

Despite all of the “confusion, uncertainty and damage” caused by the reform on contracting, Seb says there’s reason for optimism.

“The truth is, it’s taken years for firms to get to grips with the rules – something we are seeing gradually, but there’s still some way to go.”

This isn’t gut feel either. The statistics back it up.

The latest Qdos Annual Survey shows that 70% of contractors were able to secure a contract outside IR35 in 2024.

But it’s not all plain sailing – most contractors found it “difficult” to secure these opportunities. Combined this with HMRC’s rose-tinted view of the reforms and there’s still a fair bit of room for improvement.