Top IR35 experts slam HMRC off-payroll impact ‘research’

FCSA, Brookson, and BDO join Kingsbridge in slapping a health warning on the taxman’s latest IR35 stats update.

Alerts by HMRC about the veracity of its new IR35 “research” don’t go far enough, says every OPW adviser quizzed by Kingsbridge.

HMRC issued the alerts on Feb 27th 2025 in its new “corporate report” that assesses the impact of 2021’s off-payroll working rules.

One of the HMRC alerts says its impact “estimates” of the new IR35 are “indicators only,” and even then, they pose “inherent challenges.”

Another alert in HMRC’s “Update to the impacts of the 2021 off-payroll working rules…” cautions readers that it is “difficult to draw definitive conclusions.”

‘Cherry-picking, or worse — misleading’

IR35 adviser Matt Tyler says the two warnings aren’t proportionate to how wide of the mark the many HMRC findings appear to be.

At best “HMRC is cherry-picking data,” and at worst, the tax office’s conclusions are “misleading,” he fears.

Kingsbridge’s IR35 Consultancy Manager, Tyler says up to half of the HMRC research’s key findings “don’t marry up” with the IR35 insurer’s experience of the OPW rules.

Nor do the findings apparently tally with the experience of Kingsbridge partners (who Tyler quizzed before commenting for this article).

‘Updated off-payroll working impact findings’

The remaining key research “findings” from HMRC’s “Update to the impacts of the 2021 off-payroll working rules reform in the private and voluntary sectors,” drew deep reservations as well — from four other IR35 advisers.

John Chaplin, employment tax partner at BDO told Kingsbridge that one of HMRC’s conclusions is “surprising,” to say the least.

Chris Bryce, Chief Executive of the Freelancer & Contractor Services Association (FCSA), spoke to Kingsbridge about his “serious doubt” about the same finding (#10, below).

‘Tax authority is trying to push a narrative’

Boss of Brookson, Matt Fryer, said in a statement to Kingsbridge that HMRC’s assertions (at #9)“feel as if the tax authority is trying to push a narrative”.

Alan Lowdell, a contractor staffing giant’s former Finance Manager told Kingsbridge that HMRC’s “numbers make no sense”(at #1,2,5,10).

And as to contractors themselves, Clarity Umbrella founder Lucy Smith says “many” PSCs won’t likely agree with HMRC’s statements (at #6).

HMRC’s off-payroll rules impact ‘research’: 10 key findings

1. HMRC estimates IR35 reform has “generated” £4.2 billion of additional tax and NIC, equating to a £10,000 annual increase in tax paid per worker affected.
2. 120,000 workers are “likely” to have been affected by the April 6th 2021 off-payroll reform.
3. 280,000 workers moved from their own PSC payroll to being paid by another organisation’s payroll between October 2019 and March 2022 (including those who became deemed employees), but out of these 280k, HMRC estimates only around 40% (120,000) moved because of IR35 reform.
4. Those PSCs and their workers who changed payrolls around the time of private sector IR35 reform (April 6th 2021) tended to have above average earnings compared to the whole of the UK population, and “some workers” have seen “minimal changes” in their take-home pay post-IR35 reform, while “some individuals” have reported an increase in their pre-tax income.
5. HMRC estimates that there has been a reduction in the overall number of “PSC employments” of around 130,000, in addition to 45,000 fewer new PSCs formed between April 2021 and March 2022.
6. More PSC workers have been unaffected by IR35 reform than affected. Overall, total employments across all types of work for PSC workers have “increased,” when comparing a point in time before the reform to a point in time after the reform.
7. HMRC claims there are no sectors where the total number of PSC workers who changed payrolls make up more than 10% of total employment in that sector.
8. Of the 280,000 workers who HMRC estimates to have moved from their own PSC payroll to being paid by another organisation’s payroll, 69% moved to organisations that are not agencies or umbrella companies (such as becoming an employee of the client).
9. Due to IR35 reform on April 6th 2021, 18% of PSC workers moved to an umbrella company; 13% moved to an agency, 4% worked ‘inside IR35’ (i.e. as a deemed employee for tax purposes), and 0.5% moved to a Disguised Remuneration scheme.
10. The impacts of IR35 reform “make up only a small proportion of the total workforce;” are “unlikely to play a major part in overall changes in the total workforce” and likewise, while HMRC has seen “changes in the way some PSC workers provide their services” due to the off-payroll working rules, “any noticeable changes in the labour market in recent years are unlikely to have been driven entirely by the reform given those impacted make up only around 1% of the total workforce.”

Tyler, Lowdell and another professional number cruncher – AR Tax Accountants – take issue with HMRC claiming IR35 reform has generated an extra £4.2bn.

‘Very bold claims by HMRC, chiefly £4.2bn extra due to IR35’

Formerly of Gattaca plc, Mr Lowdell said: “HMRC makes some very bold claims in this research report, the first being due to OPW it has an additional £4.2bn to play with.

“But £0.7billion of that was before the reform hit, and also noteworthy in 2022-23, the estimated tax benefit deteriorated on 2021-22.”

Pointing out HMRC uses the word “generated” (not “collected”), Kingsbridge’s Mr Tyler says a tax uplift doesn’t mean taxpayer compliance uplifted.

‘Spring Statement 2025 may cite £4.2bn yield of OPW rules’

“It just means that rightly or wrongly, workers are suffering more tax,” clarified the IR35 Consultancy Manager, who added:

“The £4.2bn figure will no doubt be HMRC’s justification for IR35 reform or a justification we may hear at Spring Statement 2025.

“But part of that £4.2bn will be sums from contractors who’ve been forced into PAYE models by risk-averse engagers.”

‘Limited company contractor bans raised millions’

AR Tax Accountants said: “Most of the extra tax is [seemingly] the result of banning limited company contractors and forcing contractors onto payrolls.

“HMRC claims it is still ‘up’ [in revenue terms from the extra PAYE and NIC], even when factoring in the loss of corporation tax and dividends tax.

“But it also says £0.7bn relates to 2020-21; £1.9bn to 2021-22, £1.6bn to 2022-23…[and yet its] tax take apparently fell in 2022-23.”

‘Offset taxes’

According to Lowdell, the taxman’s figures ought to be taken with a pinch of salt.

The ex-agency finance boss explained: “HMRC says in multiple places in its ‘research’ that these are estimates only, and it also details groups both included and excluded.

“But it’s unable to identify any by name or company name.

“Yet HMRC also says [the £4.2bn figure] includes the reduction in corporation tax; self-assessment income tax, NICs, dividend taxation, VAT and Capital Gains Tax.

“As HMRC cannot identify by person or company, then how on earth can it claim to have offset these taxes?”

‘IR35 reform cost each contractor £10k extra in tax’

AR Tax Accountants answered a contractor on LinkedIn who sounded similarly perplexed, by explaining:

“HMRC would have looked at how much corporation tax, dividends tax, PAYE and NIC, you paid before and after [IR35] reform.

“They have found that on average [due to OPW], tax has gone up by around £10k per contractor — as PAYE and NIC [liabilities] have [more than offset] the decrease in corporation tax, dividends tax, VAT and CGT [liabilities].”

‘Contractor take-home since IR35 reform hasn’t necessarily fallen’

But HMRC says an additional tax bill of £10,000 per contractor does “not necessarily mean post-tax take-home pay has fallen.”

“And HMRC says ‘some individuals’ have reported an income increase,” began Kingsbridge’s Mr Tyler, referring to #4, above.

“It’s a bit like when HMRC says there’s ‘no sector where total PSCs who payroll shifted exceed 10% of total employment in that sector [#7].’

“It’s probably accurate – as an isolated fact, but it’s misleading.

“With the ‘total employment’ finding, it’s sub-10% for PSCs only because HMRC counted everyone from sole traders to permanent employees.

“With the ‘take-home not fallen’ finding, ‘some individuals’ could mean just two people pocketed a penny more. And hey presto; HMRC can assert ‘pay cuts aren’t happening for some.’”

‘Things aren’t all that bad; all is well, and IR35’s a great success’

On pay, Tyler characterised HMRC as effectively saying, “Things aren’t all that bad,” albeit based on stats which only its officials have the full context for.

Brookson’s Mr Fryer echoed last night: “Some of the conclusions reached by HMRC feel as if they are trying to push a narrative of ‘All is well and the reforms have been a great success.’

“That’s a conclusion which I don’t agree with.

“It’s clear that IR35 reform has impacted many contracts and contractors…with a big move from PSC to umbrella [working].

“At Brookson, we’ve seen a broadly equal decrease [in PSCs] and increase [in umbrella company usage]…though HMRC claims only 18% have moved to an umbrella company [#9].”

‘IR35-concerned corporates couldn’t take the HMRC risk’

BDO says on IR35 reform’s eve, “many large corporates” wanted to retain a flexible workforce but “were concerned”.

“The [HMRC-IR35] risks associated with paying anyone outside of PAYE [were just too great]” recalled the tax and business advisory’s Mr Chaplin.

“Many [big corporations therefore] implemented policies which proscribed the use of any contractors other than those…working through an umbrella company”.

‘Umbrella companies most common response to inside IR35’

Kingsbridge confirms: “By far the most common means of dealing with IR35 once a contractor is deemed ‘inside IR35’ is to simply shuttle them off to an umbrella company.

“But HMRC’s data indicates this is actually a relatively rare occurrence and that instead, 69% ‘moved to organisations that are not agencies or umbrella companies [#8].’”

‘Bonafide brollies boosting tax take’

The FCSA welcomes HMRC specifying in its research that “bonafide” umbrella companies have boosted the UK’s tax take.

The association intentionally used the ‘b-word,’ alluding to only a tiny 0.5% of OPW-hit workers (equating to 1,500 contractors) who moved to DR schemes.

“Whereas 18% – 54,000 workers – moved from a PSC to what…[this HMRC report acknowledges to be] compliant umbrella payroll.

“This indicates that the government has drastically overestimated the scale of non-compliance within the umbrella market.”

‘Serious doubt’

FCSA’s Chris Bryce continued: “The government has stated £2.8bn in tax revenues is recoverable over the course of the parliament, by addressing non-compliance by umbrella companies.

“While this [HMRC research report] only looks at about 20% of the workforce, it throws HMRC’s estimates into serious doubt, especially when they go on to claim that IR35 reforms are ‘unlikely to have driven any noticeable changes’ in the labour market [#10].’”

‘Fewer off-payroll workers due to clear, obvious, major legislation’

BDO’s employment partner John Chaplin calls it a “surprise” finding from HMRC.

Yesterday, he told Kingsbridge: “While there have been other factors such as covid and the impact of economic downturn, the clear, obvious and major reason for the reduction in the number of off-payroll workers…is the changes [since April 6th 2021] to the off-payroll legislation.”

Further at odds with HMRC’s findings, Chaplin “didn’t see any discernible increase in day rates”.

So the result of IR35 reform was that “many contractors simply took home less” from “having to bear deductions for National Insurance Contributions from their day rate.”

‘IR35 reform-impacted contractors weren’t given outside IR35 status’

And Brookson Managing Director Mr Fryer, a chartered accountant, says in too many instances, those deductions were unnecessary.

“It is clear that many IR35 reform-impacted contractors should have been determined as ‘outside IR35’ if the end-client had applied the rules correctly and received best advice.

“Unfortunately, this is not a path that many have followed,” he says.

“Indeed, much of the ‘success’ implied in this HMRC research is as a result of incorrect ‘inside IR35’ determinations, or supply chains simply refusing to engage contractors working via a PSC.

“This issue of ‘false employment’ prevails and in my mind is one of the major failings with the off-payroll working rules, as a policy.”

‘HMRC’s numbers make no sense’

Former Finance Director Mr Lowdell says one of the major failings of the six-chapter HMRC update is its figures.

“HMRC estimates around 120,000 workers are likely to have been affected by the April 2021 off-payroll reform.

“Then HMRC estimates around 45,000 fewer new PSCs formed around the time of the reform, up until the end of March 2022. Yet the Revenue adds that those impacted make up only around 1% of the total workforce. These numbers make no sense.”

‘HMRC wants to get every worker on a payroll’

Invited by Kingsbridge to put forward at least some rationale, Lowdell offered: “This OPW impact update is a continuing attempt by HMRC to achieve two things.

“First, to give itself a pat on the back. And second to get every single working person in the UK on PAYE.”

A concerned freelance HSE consultant, James Brown, says the UK appears to not be reading the room, internationally.

Brown posted in light of the HMRC’s research findings on IR35: “Other countries are embracing and encouraging the ‘gig economy,’ and ‘digital nomads.’ But the UK seems to be trying to do the opposite.”

‘Fewer limited company contractors’

“I don’t think HMRC or the UK government care,” responded AR Tax Accountants, in another post but also on social media.

“They seem to be happy with their extra £4.2 billion of taxes, and having to deal with fewer limited company contractors.”

One such limited company contractor, Matt Neal, sounds a bit resigned.

“It’s pretty widely known and accepted that the reforms didn’t do much good. But HMRC will never walk it back—[not at] at this [late] stage.”

‘Cherry-picking’

And so tasked with authoring “research” on IR35 off-payroll rule impacts, the Revenue potentially has little choice but to be selective, as Kingsbridge’s Mr Tyler outlined:

“While HMRC undoubtedly has access to a wider dataset than we as an IR35 insurer do, due to its ‘Connect’ database, it would appear to some degree that HMRC is cherry-picking their data.

“So the UK tax authority appears to be presenting the facts in the best light possible [simply to support its case].

“To HMRC’s credit, they do acknowledge the data they used has ‘inherent challenges’ – which I don’t disagree with. But I feel a more unbiased and focussed approach would have been preferable.”

‘Contradicting what we see every day’

To readers of the report, however, one tax dispute expert signalled that, paradoxically, they may have little choice, too.

Hinting at a laugh or cry situation, WTT Group’s Graham Webber said of the taxman’s IR35 research: “If you enjoy a good chuckle, and don’t get annoyed when official reports contradict what we see every day, fill your boots.”

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