Why Rupert Lowe MP is right to say IR35 needs revoking

The off-payroll rules are ripe for repeal, replacement, or reform at Autumn Budget 2025.

The introduction of the off-payroll working rules, also known as IR35, notably in the private sector in 2021, has resulted in continuous and consistent damage to the UK’s economic growth, writes Teodora Dimitrova, owner, director and practice manager at Chart Accountancy.

With Autumn Budget 2025 to come, and both Finance Bill 2026 and the Employment Rights Bill practically here, the introduction of more measures seems almost counterintuitive.

And we know from a House of Commons answer on IR35 that Rupert Lowe MP received from Treasury boss Rachel Reeves MP, that none of the incoming measures in these three government-set pieces will have the effect of repealing the off-payroll working rules. That’s a deletion from the statute book that Mr Lowe is entirely right to call for.

Here’s why IR35 must be revoked

The state of the independent contractor market is disappointing. It is particularly concerning that the chancellor has described the UK economy’s recent performance as “disappointing” (see July 11th 2025 BBC news item), while at the same time, the private sector faces increasing barriers to hiring.

Those barriers impede the engagement of independent consultants, due to the IR35 regulations, and the direct employment of individuals, due to increased employer National Insurance rates (in force since April 6th 2024).

How much HMRC says IR35 has raised (leaves out a big chunk)

When IR35 was introduced, the government forecasted an additional £4.2 billion in tax revenue. It’s an IR35 yield figure that HMRC is sticking to today in 2025/26, notably in its “Update to the impacts of the 2021 off-payroll working rules” research.

However, in my view, this big projection failed to account for the lost tax revenues and missed opportunities for growth, particularly when considering the global competitiveness of our economy.

IR35 was created when the workforce wasn’t as flexible in its options

The UK’s independent consultants in the professional services sector are highly attractive not only to local businesses but also to international clients. These professionals often export their services globally, bringing both tax revenue and wealth into the UK.

As a result of what is effectively a pretty widely enforced ‘ban’ on contractors under the current IR35 regime, internationally mobile contractors are increasingly choosing to leave the UK and relocate to jurisdictions with lower tax rates – where they can continue working with clients without the risk of being taxed unfairly under PAYE.

IR35 exodus: examples of contractors leaving UK over IR35

We are just a small accountancy firm, but here are a couple of examples of contractors leaving the UK over IR35.

A software developer residing in the UK (but from Europe) was rejected on a tech contract by search engine company Yahoo!

At the final application stage, the company pulled back because it didn’t want to risk any local IR35 compliance issues. This same contractor told me he would have been able to secure the contract if he were in his home country. Guess where he’s located now?

A British client of our accounting firm just left the UK, closed down his UK consultancy business and moved to the UAE.

Why? Because his client is now in the US, and before that, he had a risk-averse UK client who resorted to an IR35 ‘blanket ban’ of limited company workers. Technically, our client knows there’s nothing that stops him from opening a ‘Freezone company’ in the UAE, and soon all his company’s revenue will be moved away from the UK in favour of the US customer. Almost needless to say, “IR35” was one of the first things on his lips in our office!

Why does ‘inside IR35’ rankle so much?

To first-time readers of the Kingsbridge Blog, leaving the UK like this – to escape the clutches of HMRC and its IR35 legislation – might seem a bit drastic.

Yet, being ‘inside IR35’ means being taxed like an employee, but without gaining corresponding employment rights. This is because an ‘inside-IR35’ contractor is not recognised as an employee for the purposes of employment law and associated protections.

The IR35 legislation, also referred to as the off-payroll working (OPW) rules, is fundamentally unfair because it fails to align tax liability with employment rights. If a taxpayer is subject to the same tax burden as an employee, they should receive equal access to employment protections. The current system breaks this principle.

UK market? ‘No thanks, we’re international’

In addition, due to the increased risk imposed on businesses engaging contractors, international companies are being deterred from entering or expanding within the UK market.

We have witnessed clients losing contract opportunities as international customers actively seek to avoid the perceived IR35 risk.

The IR35 legislation is also opinion-based, making it difficult to apply in practice. This uncertainty forces independent consultants into a difficult choice: remain in the UK and accept PAYE-style engagements, or leave the UK altogether in search of fairer treatment.

The IR35 legislation must be revoked and replaced with a new framework.

The House of Lords Economic Affairs Committee were onto something BIG on IR35…

It is therefore disappointing that the government (back in April 2020) chose to, effectively, ignore the proposals of the House of Lords – and that the two subsequent governments have also failed to implement meaningful reform.

The House of Lords recommended a review of the off-payroll working rules, with a clear and necessary objective: to treat people fairly.

The Lords recommended that the government “consider alternatives to the off-payroll rules that are fairer and less risky, and which do not treat individuals as employees for tax purposes when they do not enjoy the rights of employees”.

Alternatives to IR35: the holy grail, and the heart of a formal recommendation

HMRC responded to the recommendations, but it wasn’t the sort of response that proportionately dealt with the significance of what the peers found, notably:

“We heard a number of proposals for alternatives to the off-payroll working rules. While these proposals would need to be developed in more detail, fully costed and rigorously tested, they could represent a less complex approach than the off-payroll rules, while giving contractors and clients certainty about their position.”

Resistant, inflexible, and not listening to their own commissioned expert…

The Lords added that they “do not believe” that ministers’ “resistance to alternative approaches has served the government well”, observing:

“The more intractable and difficult the problem, the more the government needs to be flexible and open to a range of ways of tackling it.”

And if you’re in any doubt just how concerned the peers were about the government’s approach, consider this from their “Off-Payroll Working: Treating People Fairly” report:

“It is concerning that the government has pressed ahead with the off-payroll working rules at a time when the Taylor Review, which it commissioned, recommended a more holistic solution than these rules can offer.”

IR35 alternatives deserve a second look

In my view, the emphasis from these very thorough, knowledgeable inquisitors of IR35 on the need to find alternatives to the off-payroll working rules was a brilliant recommendation. It’s one that would have potentially brought much-needed clarity, fairness, and efficiency, without undermining the government’s tax collection objectives.

Indeed, on page 44 of their full report, the Lords give HMRC such a big helping hand by stipulating that IR35’s replacement ought to be “certain”, “simple”, “fair”, “supportive of growth”, “administratively straightforward”, and “enforceable”.

It is also worth noting that, since I began my career in accounting for contractors in 2011, not a single year has passed without a budget discussion on the future of IR35. The uncertainty it causes must be brought to an end – either by this government or the next.

At Autumn Budget 2025, it’s time to cure the ‘sickly child’ once and for all

Of course, it’s far from just us accountants who want IR35 sorted out.

As Justine Riccomini, now chair of the ESI forum, has famously described IR35: “IR35 was conceived 20 years ago. It was a sickly child when it was conceived, and I do not think it has got any better along the way.”

Personally, I just don’t think there can be any doubt anymore. At Autumn Budget 2025, Labour should take the first crucial step and reform IR35, for the sake of fairness and the UK’s long-term economic growth.

Getting support with IR35

Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Their team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.

They also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.

To find out more, get a quote or contact their experts today.