PolicyLens

Conservative - Tax

Reform IR35 contractor rules

Loosen or simplify off-payroll working rules for contractors, with exact status tests unspecified.

Last updated: May 2026.

Read the policy-specific methodology note

Tax baseline

Off-payroll rules seek to tax contractors working like employees broadly as employees. Reform may reduce compliance costs but can reopen gaps between employee and company-owner taxation.

  • Contractors and clients gain flexibility.
  • Revenue risk rises if rules weaken.
  • Simplification may reduce admin costs.

Core trade-offs

The policy can reduce genuine compliance burdens for contractors and clients. If it weakens enforcement, more income may shift into lower-tax legal forms, raising an Exchequer cost.

  • Contractors and clients gain flexibility.
  • Treasury risks lower PAYE and NI receipts.
  • Avoidance depends on detailed rules.

Fiscal impact by 2028-29

+GBP 0.2bn to +GBP 3.5bn. Central estimate: +GBP 1.0bn.

  • Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
  • Main cost is lower PAYE and NI receipts.
  • Compliance savings may raise activity modestly.
  • Design determines whether reform is cheap or costly.
  • This is not an official costing.

Economic impact by 2028-29

  • Jobs: May support project contracting; employee substitution risk rises.
  • Wages: Some contractors gain net income; employees may face unfair competition.
  • Prices: Business project costs may fall where compliance costs drop.
  • GDP / productivity: Could improve flexibility, but tax-motivated contracting lowers efficiency.

Assessment

A targeted simplification could reduce burdens without large revenue loss. A broad weakening of IR35 would likely cost revenue by encouraging employee-like work to be reclassified through lower-tax structures.

Confidence: Medium-low. HMRC evidence shows fiscal relevance; exact cost depends on reform design.

Main risks

  • Revenue leakage: Employee-like income can shift away from PAYE and employer NI.
  • Status disputes: Unclear tests create compliance costs and litigation.
  • Labour arbitrage: Firms may substitute contractors for employees to cut tax and rights costs.

Safeguards

  • Publish status tests before costing.
  • Protect clear self-employment from excessive admin.
  • Keep anti-avoidance rules for disguised employment.

Academic evidence

Adam, Miller and Pope, Institute for Fiscal Studies, 2017

Tax and legal form

Different tax treatment of employees, self-employed workers and owner-managers creates avoidance and incorporation incentives.

Relevant to IR35 reform and contractor taxation.

Tax, Legal Form and the Gig Economy (2017)

UK government evidence

Office for Budget Responsibility, 2026

OBR fiscal forecast

The OBR forecast sets the macro, borrowing and receipts baseline used for broad fiscal context.

Prevents treating tax cuts or spending changes as self-financing.

Economic and fiscal outlook: March 2026 (2026)

Sources

Other Conservative policies

PolicyLens estimates are illustrative and should not be treated as official costings.