Taxed like staff but without the rights – is it time to scrap IR35?

Britain's freelancers are trapped in a tax system built for another age

IR35 was created to stop people working like employees while paying tax through companies as though they were genuinely independent businesses. More than a quarter of a century later, it has spawned complicated status tests, blanket contractor bans, umbrella-company working and the extraordinary possibility of somebody being treated like an employee for tax without necessarily receiving the employment rights of an employee. Now Shadow Chancellor Andrew Griffith is targeting the regime as part of his attempt to back Britain's wealth creators. If politicians are serious about replacing it, they need something considerably simpler in its place.

IR35 HAS FAILED employed people need a new system that lets them work

Self-

The Shadow Chancellor says IR35 has “crushed the dreams” of self‑employed people and promises to replace it. If he’s serious, and if the Conservative party ever gets back into power, that promise is heartening, In the meantime the UK’s wealth creators can’t wait.

IR35 was meant to stop ‘disguised employment’ where employers were using self-employed people to grow their businesses, but not having to cover their sickness, holidays, parental leave etc. Instead, it has become one of the most damaging policies for freelancers, contractors and micro‑business owners and the rules are still incomprehensible for employers and contractors alike.

Now the Shadow Chancellor too, says it has failed, and he wants to replace it entirely to back the UK’s wealth creators (ie the small and micro businesses including sole traders and freelancers). For small and micro businesses, and the millions of self‑employed people who power them, this is music to the ears and a chance to fix a system that has been broken for decades.

IR35 Chaos

IR35 didn’t fail because the idea was wrong. It failed because the implementation was chaotic, inconsistent and economically destructive. It created fear and is so complex that even the Supreme Court took a decade to decide one particular case. If top judges can’t interpret it quickly, how is a freelance contractor meant to? Contractors don’t know where they stand, and clients don’t want to take the risk of getting it wrong and facing a huge bill in back tax.

It pushed clients to ban contractors entirely and large organisations like banks, insurers, tech firms, and public bodies, responded by banning limited‑company contractors, forcing people into PAYE or umbrella companies, and shutting down flexible work routes. The upshot was that it crushed opportunities for freelancers and small consultancies.

IR35 treats genuine entrepreneurs like employees, without giving them rights which means they’re taxed like an employee, but have no right to sick pay, holiday pay or job security. That’s the worst of both worlds.

It punishes labour‑intensive sectors like IT, engineering, health and construction, which are hit hardest and are exactly the sectors the UK needs for growth. It has damaged productivity, slowed major projects down, delayed digital transformation and infrastructure delivery, increased project costs and reduced access to specialist skills. The UK is less competitive because of it.

It has also crushed self‑employment growth. The UK lost hundreds of thousands of self‑employed workers after IR35 reforms. Many shut down their companies. Others left sectors entirely. These are the crushed dreams the shadow Chancellor is talking about and it’s also the firms that innovate and create jobs.

Replacing IR35

Replacing IR35 can’t be cosmetic and when it comes about it must be structural.

We need a clear statutory test for self‑employment: a simple, objective test based on control, financial risk, substitution, multiple clients, and business structure. If you meet the test, you are self‑employed, full stop. We need clarity. If someone is taxed like an employee, they should have rights and if they don’t have rights, they should be taxed as a business.

We also need to end the client liability that leads to blanket bans. Clients shouldn’t face punitive back‑tax bills for honest mistakes, and that would reduce fear of getting an IR35 decision wrong and we can get back to productive flexible work. We need a legal framework that protects genuine freelancers, supports micro‑businesses and encourages flexible work. All that would reduce admin and ensure fair tax treatment.

The UK’s tax system is built for 9‑to‑5 employment and big businesses. It needs to recognise portfolio careers, project‑based work, multi‑client income, digital and remote work and short‑term contracts. The IR35 replacement must reflect how people work today.

A fair, clear system would:

unlock flexible talent

reduce project costs

boost innovation

support digital transformation

revive self‑employment

strengthen the UK’s competitiveness

help micro‑businesses scale and

increase productivity across the economy.

It would also restore the confidence that IR35 destroyed.

RIP IR35

IR35 damaged the UK’s entrepreneurial engine and punished genuine freelancers. It scared off would-be clients, slowed projects and crushed opportunity. If the Shadow Chancellor wants to replace it, he must come up with a system that’s clear, fair and simple.

The UK can’t grow without its wealth creators and wealth creators can’t thrive while trying to interpret IR35.