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Abolish IR35 rules

Reform UK · what the evidence says

An independent, source-checked look at Reform UK’s policy “Abolish IR35 rules” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.

Tax & the money you keep — Helps

moderate · moderate confidence

Abolishing IR35 would directly raise take-home pay for contractors currently classified as inside the rules, who can lose up to 30% of their income compared to self-employed rates. The gain is real but concentrated among contractors rather than the broader workforce.

The evidence

Biggest unknown: How many workers are currently caught inside IR35 and would actually reclaim self-employed tax treatment, versus simply remaining on payroll — the population-scale benefit depends on this behavioural shift.

Our reading: O11 asks how much of what people earn they get to keep. IR35 directly compresses take-home pay for contractors classified inside the rules by aligning their tax burden with employees rather than the self-employed rate. The gap is large: up to 30% less take-home pay inside IR35 versus outside (E14), and the self-employed rate is roughly 55% lower in total labour tax than the employee rate (E7). Abolition would immediately restore the self-employed tax treatment for affected contractors, delivering a direct, material improvement to their take-home pay. The gain is real but concentrated: it flows to contractors currently caught by IR35, not to employees or the broader workforce. Businesses that previously imposed blanket inside-IR35 determinations may re-engage contractors on outside terms, extending the benefit further. Absent the policy, contractors in that position continue bearing employee-equivalent tax without employee rights. The IFS and OTS flag that the underlying problem is the structural gap between employment and self-employment taxation, and that abolition without systemic reform simply widens that gap again (E27). But from O11's narrow lens — money in pocket — widening the gap means more take-home pay for affected workers, not less. The revenue cost (around £2 billion a year per E9) and any downstream public-finance effects are O12 territory, not scored here. Confidence is moderate because the population-scale benefit depends on how many workers reclaim genuine contractor status rather than remaining on payroll, and HMRC's own impact assessments have been criticised as incomplete (E28).

Public finances & the next generation — Hurts

moderate · moderate confidence

Abolishing IR35 would remove rules that currently raise several billion pounds a year in tax, widening the gap between what employees and self-employed workers pay. Without an alternative mechanism to replace that revenue, the bill would fall on either public services or future borrowing.

The evidence

Biggest unknown: Whether abolition would be accompanied by a broader reform merging income tax and NICs that could recover the lost revenue through other means.

Our reading: IR35 currently functions as a revenue-generating anti-avoidance mechanism. The measurable evidence is clear: the 2017 and 2021 reforms raised approximately £4.2 billion in additional tax over three years, and independent estimates put the annual cost of repealing those reforms at around £2 billion per year. The structural driver is the large existing tax gap between employees and the self-employed — roughly 55% less in total labour tax — which IR35 partially closes for 'disguised employees'. Abolition without a replacement mechanism would reopen this gap at scale. The policy text contains no funded offset, no replacement revenue instrument, and no commitment to the kind of broader income-tax/NICs merger that the IFS and OTS suggest could make IR35 redundant in a fiscally neutral way. The 2022 repeal attempt — reversed within weeks partly due to fiscal concerns — provides a real-world precedent: even a partial rollback was scored as a multi-billion-pound cost. On O12's criteria — is spending (or in this case, a tax expenditure) funded, and does it worsen the debt path? — the answer leans clearly toward 'worsens'. The only plausible countervailing argument is that abolition boosts contractor activity and tax receipts indirectly; but no cited evidence quantifies this as sufficient to offset the direct revenue loss, and the IFS explicitly warns against piecemeal removal without systemic reform. Magnitude is moderate: the annual cost is material but not transformative relative to total fiscal aggregates. Confidence is moderate because the exact behavioural response to abolition is uncertain, but the direction of the fiscal effect is not.

Inequality & fair shares — Hurts

moderate · moderate confidence

Abolishing IR35 would widen the tax gap between high-earning contractors and ordinary employees, disproportionately benefiting higher-income self-employed individuals while costing the Exchequer roughly £2 billion a year — money that would otherwise fund public services used by lower earners. The main uncertainty is how much of the gain flows to genuinely low-income sole traders versus higher-earning disguised employees.

The evidence

Biggest unknown: Whether lost tax revenue leads to public spending cuts or tax rises that fall on lower earners, and the degree to which the gains are concentrated among higher-earning contractors versus low-income sole traders.

Our reading: O14 asks whether the gap between the richest and the rest widens or narrows. Abolishing IR35 operates on this gap through two channels: the distribution of tax relief and the fiscal cost. On distribution: IR35 targets 'disguised employees' — workers who operate through personal service companies primarily to reduce tax liability. The existing labour-tax gap is already substantial (55% lower total tax for a typical self-employed worker on the same gross). The workers most able to exploit self-employed status for tax purposes — operating through limited companies, setting their own remuneration mix — are disproportionately higher earners. Abolition would widen this pre-existing gap, with the gains flowing predominantly to higher-income contractors rather than to lower-income sole traders who largely sit outside IR35's scope anyway (small businesses remain exempt under current rules per E3). On the fiscal cost: at roughly £2 billion a year in lost revenue, abolition creates either a deficit increase (scored elsewhere) or a pressure to cut public services or raise other taxes. Either path tends to fall more heavily on lower- and middle-income households who rely more on public services and have less capacity to absorb tax rises, further widening net inequality. A genuine counterfactual caveat: some lower-income sole traders do face compliance costs and 'blanket ban' effects (E14) and could benefit from abolition. But these effects are secondary — the primary distributional channel runs through higher earners with the structure and income to exploit the resulting tax gap. The IFS flags that the fundamental problem is the differential tax treatment of employment versus self-employment, and that abolition without systemic reform simply widens an already significant gap. On the evidence provided, abolition moderately worsens O14 by widening income inequality through a regressive distribution of tax relief.

Cost of living — Mixed picture

minor · moderate confidence

Abolishing IR35 would raise take-home pay for contractors currently treated as inside the rules, but the ~£2 billion annual revenue cost risks squeezing public finances in ways that could affect ordinary households. The gains flow mainly to higher-earning contractors, not lower-income households.

The evidence

Biggest unknown: Whether the fiscal shortfall (circa £2bn/year) is offset by growth in contractor activity, or instead leads to spending cuts or tax rises that hurt ordinary households more than the take-home gains help contractors.

Our reading: Abolishing IR35 has a genuinely mixed effect on cost of living. On the upside, contractors currently classified as inside IR35 face a take-home pay penalty of up to 30%; removal of those rules would directly raise disposable income for this group. Compliance and administrative costs for businesses engaging contractors would also fall, potentially feeding through to more contract opportunities and higher net pay. On the downside, the revenue loss is substantial — around £2 billion a year — reflecting the large existing tax gap between employees and self-employed workers. That fiscal cost, absent any replacement revenue, could squeeze public spending or require offsetting tax rises, harming ordinary and lower-income households who are the core beneficiaries of publicly funded services and transfers. The distributional picture further complicates the verdict: the direct beneficiaries of abolition are concentrated among higher-earning contractors, not the lower-income households who matter most for the O2 fundamental. The risk of 'disguised employment' expanding — businesses substituting employees with nominally self-employed contractors to cut costs — could also erode employment protections and employer pension/sick-pay contributions for workers who are effectively employees, ultimately weakening their financial resilience. The IFS and Chartered Institute of Taxation both flag that the underlying problem is the structural tax differential, meaning abolition without systemic reform simply widens a pre-existing inequity rather than solving it. On balance, the policy improves disposable income for a specific (higher-earning) group while creating real fiscal and distributional risks for everyone else — a genuinely mixed picture, but of minor net magnitude at population scale given the narrow group of direct beneficiaries.

Good work & fair pay — Mixed picture

moderate · moderate confidence

Abolishing IR35 would boost take-home pay and opportunities for genuine freelancers and contractors, but would also remove the main rule stopping employers from reclassifying workers as self-employed to avoid giving them sick pay, holiday pay, and pensions. The net effect depends on how many workers are genuinely self-employed versus how many would lose rights.

The evidence

Biggest unknown: Whether abolition would primarily liberate genuine contractors or accelerate 'bogus self-employment', stripping employment rights from workers who currently have them.

Our reading: Abolishing IR35 has clear, evidence-supported upsides for genuine sole traders and contractors: up to 30% higher take-home pay for those currently caught inside IR35, fewer blanket bans by hirers, and a more accessible market for skilled freelancers. These are real improvements to pay levels and job quality for that group. However, the same abolition removes the main legislative barrier to employers reclassifying workers as self-employed — stripping them of sick pay, holiday pay, and pension contributions without granting corresponding rights. The CIOT's warning about 'zero-rights employees' and the Resolution Foundation's evidence on the large tax gap between employment and self-employment both point to a serious risk: in the absence of IR35, the labour market incentive for businesses to push workers into self-employed arrangements (saving ~11 percentage points of labour tax) grows substantially. For workers in weaker bargaining positions, this could mean worse conditions and lower effective security even if nominal pay is maintained. The verdict is therefore genuinely mixed. Genuine contractors benefit materially; workers on the margin of employment status risk losing rights. The magnitude depends on which group is larger and how aggressively firms exploit the new incentive. The IFS and OTS suggest abolition without broader tax system reform leaves the structural problem unresolved. There is also a fiscal cost of roughly £2 billion per year (projected), which constrains the government's ability to fund other worker-support measures. On balance, the policy improves conditions for clearly self-employed people but worsens protections for those who could be reclassified — a genuine mixed outcome at moderate magnitude.

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