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Five years on from the introduction of IR35 reform in the private sector, the off-payroll working landscape has evolved significantly.
Since April 2021, developments in case law, increased HMRC compliance activity, and shifting market behaviour have reshaped how the rules are applied in practice.
From implementation to the current situation, this article looks at what’s changed and what we can expect to see next.
Originally planned for April 2020, the IR35 reforms were delayed for a year due to the Covid-19 pandemic.
Mirroring the introduction of public sector reforms in 2017, the changes shifted responsibility for determining a contractor’s IR35 status to the business engaging them.
In addition to this shift, the fee-payer, either the end client or recruitment agency, became liable for the associated tax and NIC liabilities where it is found that the rules apply.
In the lead up to April 2020 and then in turn April 2021, many businesses took a pragmatic approach to thinking about how the rules should be applied.
That often took the shape of obtaining professional advice and conducting comprehensive audits of their contingent workforce, and developing a clear understanding of how their engagement of workers would impact employment status outcomes.
Significant focus was placed on analysing working practices, contracts, policies and procedures in place within organisations.
Ultimately, this led to many organisations being in a strong position to continue to engage workers outside of IR35, as well as having appropriate processes in place to meet their obligations under the legislation, ensuring Status Determination Statements could be issued compliantly and with clients demonstrating “reasonable care”.
Of course, not all businesses took this approach and, unfortunately, many decided to introduce wholesale bans on personal service companies (PSCs).
This saw organisations either:
This led to a lot of discussion as to whether these approaches should be allowed or not:
A commercial policy decision, whereby businesses decided to no longer engage PSCs on an outside IR35 basis, was seen as perfectly acceptable.
However, HMRC made it clear in its advice that it wanted to avoid organisations applying blanket determinations across large worker populations, and that such measures would be considered as being non-compliant.
The former was a common approach taken by many organisations, particularly in financial services. Many organisations still have these bans in place today, highlighting the lasting impact of the initial response to IR35 reform.
Due to the reforms, we also saw a significant surge in the use of umbrella companies as a way of engaging contractors 'inside IR35'.
In principle, engagements that fall within IR35 can still be operated via a contractor’s limited company, with employment taxes applied through a deemed payment. However, the practicalities of administering these arrangements, particularly the calculation and application of PAYE and NICs, alongside the need to reconcile accounts payable and payroll systems where the worker both invoices and is paid via payroll, can be complex and operationally burdensome for finance and HR teams.
As a result, many organisations opted for agency PAYE or umbrella company models, providing a more straightforward and administratively efficient route to compliance.
At the same time, the term “inside IR35” has increasingly been used to describe PAYE or umbrella-based engagements. This is technically misleading. It refers to a tax treatment, where the individual is deemed employed for tax purposes, rather than a form of employment.
In practice, agency PAYE and umbrella company engagements are already subject to PAYE, meaning an IR35 determination is not required in the same way as for off-payroll engagements via a limited company. However, the term continues to be used as shorthand in the market, often obscuring the underlying engagement model.
This distinction is important. In many cases, individuals are taxed as employees without receiving equivalent employment rights or protections, creating what is often described as “zero rights employment” and highlighting the ongoing disconnect between tax treatment and employment status.
It is also worth noting that engaging contractors via umbrella companies does not come without its own risks, particularly since the introduction of further legislation in April 2026 which makes the party contracting with the umbrella jointly liable for any tax defaults.
Enforcement of the off-payroll working rules has exposed a number of organisations to significant IR35 liabilities. While many of the most high-profile cases stem from the public sector, their outcomes, often concluded in recent years, demonstrate that HMRC’s compliance activity is both extensive and ongoing.
Notable examples include:
Other cases have seen high-profile bodies, including The Home Office, the Ministry of Justice, HS2 Ltd, and Natural Resources Wales, hit with high tax bills.
The situation has been different when applying that compliance activity work to organisations operating in the private sector, but it was clear from very early on that HMRC was going to take a very proactive approach to policing the rules.
At Qdos, we have worked with several organisations to support them in their interactions with HMRC. Some of those businesses have been subject to more formal checks, while others - if they are larger organisations - have simply been engaging in HMRC’s standard Business Risk Review (BRR) regime.
What has been clear, through all the compliance activity and enquiry work that has taken place, is that HMRC is taking a strict approach to analysing whether organisations have been compliant with the rules.
HMRC’s enquiries are often lengthy and highly detailed, extending well beyond a review of whether Status Determination Statements have been issued or processes followed. They typically involve a thorough examination of the contractual framework, as well as the policies and procedures that govern how contractors deliver their services, alongside a broader review of working practices that would not be captured by a “tick-box” approach to IR35 compliance.
Blink and you might have missed it, but Liz Truss’ short-lived stay as Prime Minister certainly put the proverbial cat among the pigeons.
While her 2022 Mini-Budget will be best remembered for the market turmoil it provoked – and for leading to Ms Truss becoming the shortest serving PM in UK history, it also came close to seeing the repeal of IR35.
During her leadership campaign, Ms Truss had criticised IR35 for “trying to treat the self-employed the same as big business” and the Mini-Budget introduced measures to scrap the reforms by April 2023.
The development was seen as very welcome news for contractors, many of whom had been subject to risk-averse and even non-compliant IR35 determinations.
A lot of organisations started to consider what would happen if the rules were reversed, although by 2022 many businesses had got to grips with their IR35 obligations.
At Qdos, we believed the reversal would have been welcome, but it was to be a short-lived proposal. The wider implications of the Truss-Kwasi Kwarteng Mini-Budget meant the potential repeal was only in play for three weeks.
The plan was swiftly revoked when Jeremy Hunt took over as Chancellor of the Exchequer from Mr Kwarteng.
There had been plenty of advocates for what would have been a ground-breaking change, but – coupled with the wider economic disruption of the Truss era – the swift dismissal of the planned repeal demonstrated just how politically sensitive the subject of IR35 is.
The post reform journey has been marked by several developments in case law and legislative changes.
The most notable piece of case law is the Professional Game Match Officials Ltd (PGMOL) case, which reached the Supreme Court in 2024 and was remitted back to the first-tier tax tribunal in November 2025.
This case involved referees engaged by PGMOL on a match-by-match basis during the 2014-15 and 2015-16 tax years.
The judgement from the Supreme Court confirmed that:
Other notable cases, including those of Gary Lineker, Kay Adams, Neil McCann, and Adrian Chiles, have all established new perspectives in respect of IR35. Some of these cases established case law, while others only reached the first-year tax tribunal stage.
In 2024 and 2025, several key legislative updates came into effect, including the April 2024 introduction of the IR35 set-off rules and the small company threshold changes last year.
Many observers felt the introduction of the set-off rules acted as a correction to an oversight in the original drafting of the legislation, which had the potential to result in the same labour effectively being taxed twice.
The set-off rules reduced the tax liability of a deemed employer by allowing HMRC to take into account income tax and national insurance contributions which have already been paid via a contractor’s personal service company on income later deemed to be ‘inside IR35’.
This change helps to prevent double taxation, where HMRC would otherwise seek to recover full PAYE liabilities without recognising taxes already paid on the same income.
As a result, the set-off rules levelled the playing field, significantly reducing the financial burden of an incorrect status determination.
In 2025, we saw changes to the small company exemption thresholds, which HMRC has predicted will lead to thousands of organisations no longer having to apply the rules.
Under Chapter 10 Off-Payroll rules, organisations considered small don’t have a requirement to consider the status of workers they engaged. In such a scenario, it is the workers themselves who must consider their own IR35 status under Chapter 8.
The changes to the thresholds have increased the point which a business is no longer considered small, and therefore required to apply the rules. As a result, organisations close to having to apply the rules, based on existing growth levels, are now sitting further away from the threshold.
The updated thresholds for small companies’ exemption are as follows:
To qualify as a small company, an organisation must meet at least two of these criteria. Importantly, a company must meet (or cease to meet) the thresholds for two consecutive financial years before its status changes.
In practice, the full impact of this change is unlikely to be seen until around 2027.
Some of the criticism of IR35 has focused on the government’s Check Employment Status for Tax (CEST) tool, which can be used to determine whether a contractor is deemed employed or self-employed under the rules.
It has been censured for failing to consider all aspects of the status and an inability to provide an outcome on every occasion.
HMRC insists that if the tool is used correctly, it will stand by decisions made by CEST but in practice this means HMRC will only take responsibility for mistakes made by the tool if information entered by users is 100% accurate.
Over the past five years, alongside increased compliance activity, HMRC has made a number of updates to CEST and its supporting guidance. Most recently, in 2024, this included rewording certain questions, expanding guidance to better reflect the intent behind them and the relevant case law, and introducing additional questions to improve the quality of information captured. These changes followed a re-platforming of the tool and the publication of its underlying logic.
HMRC has been proactive when it comes to ensuring organisations have the most up to date information regarding CEST. However, the core position hasn’t fundamentally changed. CEST remains a tool that can support decision-making, but it still depends heavily on the accuracy of the inputs and how it’s used in practice.
A lot has happened across the IR35 landscape since the 2021 rules became effective, and it has taken around five years for the market to settle.
During that time, we’ve seen compliance standards become more established, while HMRC’s activity has demonstrated it is prepared to actively enforce the legislation.
Organisations are now better equipped to engaged contractors compliantly, including those genuinely outside of IR35, supported by more robust processes and greater rigour in status assessments.
However, the IR35 landscape continues to evolve. While no significant legislative changes are currently expected, the continued development of case law and HMRC’s ongoing compliance activity are likely to have the greatest impact over the coming years.
As a result, organisations should not view their IR35 approach as static. Instead, there is a growing need to revisit and reassess existing processes and decisions to ensure they remain aligned with current interpretations, best practice and would stand up to HMRC scrutiny.
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