Whilst it is undeniable that the last decade concerning the IR35 Reforms (off-payroll working legislation) has caused considerable disruption to individuals and companies, those with direct experience on the ground are saying HMRC are taking a more considered and thoughtful approach to applying the reformed legislation, which in time should lead to a better functioning market.
Dave Chaplin, CEO of IR35 tax compliance firm IR35 Shield, says: "Whilst the IR35 journey for many has not been smooth, the dust has now settled, the Supreme Court has clarified the legal principles, and firms can hire with more IR35 certainty than ever before. HMRC is conducting compliance checks, and firms with strong compliance processes are passing them cleanly and quickly, rather than being dragged into lengthy disputes."
One reason for the reasonable HMRC approach may be due to the interventions and recommendations made by the Public Accounts Committee (PAC) 18 months ago.
What did PAC say on IR35 in Feb 2024?
On 28 February 2024, the Public Accounts Committee (PAC) released its Report, "HMRC performance in 2022–23," which followed meetings with HMRC on 14 December 2023. During the enquiry, the topics of IR35 and off-payroll were explored.
The PAC Report included the statement:
"The PAC is concerned that HMRC's approach to tackling IR35 is deterring legitimate economic activity, and that a lack of confidence in how to apply the rules, together with HMRC's tough approach when taxpayers make mistakes, is unnecessarily putting companies off using contractors."
But, Chaplin says the PAC comment needs to be read in the context of surrounding circumstances when it was made: "Firms now have more confidence because of the Supreme Court ruling in September 2024, experience proves HMRC are not aggressive, and the offsets legislation was amended in April 2024 to fix the inherent flaw that had led many firms to be put off hiring contractors in the first place."
Understanding the PAC statement in context - behind the curtain
Chaplin shares his experience of what was happening behind the scenes, having been on the frontline of IR35 litigation for eight years.
Since the renewed spree of twenty-one tribunal cases from late 2016 to 2024, Chaplin personally attended 75% of the hearings and assisted in 20% of the cases. Not only did he work on the most pivotal case in IR35 History, the Atholl House Productions case, but he also dealt with IR35 enquiries for multiple high-profile media individuals, many of whom never needed to go to tribunal.
Chaplin says, "The decisions that come out of the tribunals only tell a small part of the story. In reality, most of it happens in the build-up and in the tribunal, with the decision only revealing a small part of what went on."
"The Feb 2024 PAC Report was based on meetings conducted in December 2023, only two weeks after the final decision in the Atholl House case, involving broadcaster Kaye Adams. The press coverage at the time detailed the very aggressive manner in which the HMRC litigators had pursued Kaye Adams and others in the media, including Adrian Chiles and Gary Lineker – none of whom ever got final judgments against them.
Why were HMRC litigators so aggressive?
The reason for the "aggressive" stance by HMRC was that they were using the presenters' cases to push them through the courts, to try and establish new case law that aligned with their "view of status".
The "test case" they initially focused on was the Basic Broadcasting Limited (BBL) case involving Adrian Chiles, which he won. Still, delays in BBL meant Kaye's case became the frontrunner – and the unfortunate victim of HMRC aggressively seeking "clarified" case law, at her expense.
The case law was settled on 22 April 2022, when the Atholl House Court of Appeal ruling was published. HMRC lost their argument on control, but won their argument on mutuality. The court also clarified that the Autoclenz approach to contractual interpretation could not be used in tax cases – firms can now rely on their contractually binding terms. These legal principles were then ratified by the Supreme Court in September 2024, in the case of PGMOL.
After the Supreme Court case, HMRC's aggressive pursuit came to an end, as the law had been clarified.
Offsets fix legislation introduced
Shortly after the publication of the PAC Report, the flaw identified in the off-payroll rules was resolved in Finance Bill 2024 – it's referred to as the "offsets" legislation.
The fix means the threat of disproportionate tax bills that firms faced under the rules was cut by 75%. The risk is now roughly 10% of fees, not 50%. It was this flaw that had led many firms to impose internal rules prohibiting the use of contractors, thereby impeding the development of a well-functioning, flexible workforce.
Slowly, firms are realising that the IR35 position today is not the same as it was when the rules first came into effect. The case law is settled, and the risk is a fraction of what it used to be.
Is HMRC still aggressive?
It's essential to understand the difference between HMRC compliance checks and subsequent tax litigation. In my view, HMRC's litigators were overly aggressive towards the media individuals as HMRC sought to push the case law in a direction they desired. But that battle has finished.
Additionally, HMRC compliance checks differ from litigation. The case workers at HMRC are behaving reasonably today when they examine firms to determine if the new IR35 rules apply. As direct experience shows, many firms are passing compliance checks quickly and smoothly.
Summary
With major reforms on the horizon, including new umbrella company legislation set to take effect in April 2026 and the ongoing debate around a potential single worker status in the forthcoming Employment Bill, businesses are bracing for further disruption to the flexible workforce market. Yet amidst this uncertainty, IR35 is now proving to be a safe haven.
Chaplin says, "Eighteen months ago, the Public Accounts Committee (PAC) warned that HMRC's 'tough approach' was deterring companies from using contractors. Today, the environment is starting to look very different.
"The dust has now settled on IR35. The Supreme Court clarified the legal principles a year ago, the offsets fix in April 2024 has removed disproportionate risks, and HMRC's compliance teams are acting reasonably. Firms are passing checks quickly and cleanly, giving them the confidence to hire contractors again.
"It's clear the risks for businesses have been dramatically reduced. Against the backdrop of new employment and umbrella reforms, IR35 is the one area where firms can now hire with some certainty.
"For the first time in 25 years, IR35 is seen to be working in practice. My advice to policymakers would be to avoid tinkering with taxes and let the stability hold - especially now, when businesses need certainty more than ever. The last thing we need now is more policy meddling."