HMRC recently revealed it collected £1 billion more in tax than expected from the 2021 rollout of the IR35 reforms for the private sector. However, many in the IT contracting community are pushing back against this interpretation, claiming it doesn’t signal success.
In February 2025, HMRC shared details about the effects of these reforms, which originally started in the public sector in April 2017 to curb disguised employment. Contractors were shifted from being responsible for determining their tax status to the end-client organizations who hire them. In 2021, after a pandemic-related delay, the changes were applied to medium and large private firms.
According to HMRC, about 120,000 contractors using limited companies or personal service companies may have been impacted. This number includes those who were deemed inside IR35 due to the changes and those who switched to umbrella companies. Yet, HMRC initially estimated 170,000 individuals would be affected, raising questions about accuracy.
The 2020 forecast suggested the reforms would yield an extra £2.395 billion in tax over three years, but by early 2025, the reforms brought in a staggering £1.8 billion more than projected, despite the reduction in the expected number of affected individuals.
Dave Chaplin, CEO of ContractorCalculator, raised eyebrows over these numbers, stating it seems implausible that a smaller pool of contractors could produce such a large increase in tax revenue. He pointed out that if 170,000 people were expected to generate £2.4 billion, the new total of £4.2 billion would require nearly 300,000 individuals under the new rules. Chaplin insists HMRC’s estimate of 120,000 is likely far too low.
On the other side, Andy Chamberlain from IPSE suggested that the extra £1 billion could indicate overcompliance, where genuine freelancers were pushed onto payrolls despite their roles being legitimately outside IR35. Many firms opted for blanket policies, categorizing all contractors as inside IR35 to avoid extra effort, while some imposed hiring bans on off-payroll workers, forcing many to switch to umbrella companies.
Chamberlain noted that some contractors who transitioned to umbrella arrangements increased their rates, resulting in higher overall tax revenue. When Computer Weekly reached out to HMRC for clarification on the revenue generated with fewer contractors, the agency didn’t provide a direct answer, only acknowledging changes in estimates based on improved data and methodology.
Chaplin remained skeptical, deeming the discrepancies concerning and indicative of unreliable data that undermines confidence in HMRC’s claims about the reforms’ success. He argued that these flawed figures may have led to misguided policy decisions affecting the freelance market.
Moreover, HMRC indicated that the reforms might have led to a decline in new personal service companies, estimating around 45,000 fewer firms were created since the rollout. This suggests many potential self-employed individuals might have opted for permanent employment instead.
Chaplin highlighted that in his view, the data suggests the reforms have stripped many freelancers of their independence at a time when the economy needs their flexibility the most. He cautioned that HMRC’s findings should be approached with considerable skepticism.