The client's perspective: Assessing the impact of IR35 reforms in the private sector

  • Almost half of clients (49%) reported that their business could not achieve the same outcomes without the use of contractors
  • Over a quater of clients (28%) have decreased the number of contracts they’ve given to contractors since IR35
  • 48 per cent of clients did not know the percentage of contractor engagements that were inside or outside IR35 at their company

Despite half of UK businesses (49%) stating that they could not achieve their level of growth and outcomes without the help of contractors, a significant number of companies (28%) have decreased the number of contracts they have given to contractors since the reforms to IR35 in April 2021. Moreover, over a third of clients (35%) agreed that it had been more difficult to attract the freelance talent that their business needs as a result of the IR35 changes, with 11 per cent strongly agreeing.

IR35 legislation in practice

With the one-year anniversary of IR35 fast approaching, it clear that the reforms have not only financially hit contractors – with over a third of contractors (35%) leaving self-employment as a result – but have also created significant financial and administrative problems for clients. In fact, almost one in two clients (47%) reported that IR35 compliance had been a significant administrative burden to them over the past year. What’s more, the reform is so difficult to understand that almost 48 per cent of clients did not know the percentage of contractor engagements that were inside or outside IR35 at their company.

Whilst the reforms state that companies need to assess a contractor's employment status on an individual basis, one in five clients (20%) have made a blanket assessment and determined that all their contractors are within IR35.

In terms of carrying out an IR35 assessment for current engagements, over a quarter of clients (26%) say that they use the government’s CEST (Check Employment Status for Tax) tool whilst over one-fifth of businesses (22%) stated that they make IR35 assessments themselves without using any tools or software. Of those that use CEST, the research found that it had led to a 35 per cent decrease in contractor engagement and was also revealed by HMRC’s own statistics to be unable to make a determination in more than one in five (21%) cases.

Read the full report here


Meet the author

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Joshua Toovey

Senior Research and Policy Officer

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