IR35 has been part of the UK tax landscape for more than twenty years.
The rules are now split between two sections of legislation: the original framework in Chapter 8 of ITEPA 2003 and the later off-payroll working rules in Chapter 10.
The rules contractors and clients deal with today result from more than 25 years of changes, court cases, and reforms to the original IR35 legislation.
For a brief introduction to IR35, read IR35 basics.
1999 – the IR35 press release
The origins of IR35 go back to the March 1999 Budget. The Inland Revenue published a press release titled Countering Avoidance in the Provision of Personal Services (Budget Press Release number 35).
The name “IR35” simply derives from the press release number.
The original legislation aimed to prevent workers operating through limited companies from paying less tax and National Insurance, despite working practices more akin to those of employees.
2000 – IR35 becomes law
The Intermediaries Legislation took effect from 6 April 2000 via the Finance Act 2000.
2001 – the PCG judicial review
The Professional Contractors Group challenged the legality of IR35 soon after the rules took effect, arguing that the legislation was incompatible with European law.
The challenge failed in the High Court and again in the Court of Appeal in December 2001, leaving IR35 in force. Read our full account of the PCG judicial review.
2003 – consolidation into ITEPA
A few years later, the legislation was consolidated into the Income Tax (Earnings and Pensions) Act 2003 and now sits in Chapter 8 of ITEPA 2003.
From then on, contractors operating through their own limited companies had to determine whether engagements were inside or outside IR35 and, where necessary, calculate a deemed payment.
The original rules focus on whether a contractor is genuinely in business on their own account. If a contract is inside IR35, the contractor’s company must treat most of the income from that engagement as employment income.
This system still applies today when working for a small private sector client.
The 2000s – controversy, case law and official reviews
During the 2000s, IR35 remained highly controversial. Many contractor groups argued that the legislation was unclear and difficult to enforce. Professional bodies also questioned whether it even raised any meaningful tax revenue.
Throughout this period, case law became increasingly important. Tribunals examined factors such as control, substitution and mutuality of obligation. These remain the central status tests used in IR35 decisions today.
You can read our explanation of these tests here: IR35 employment status tests.
2011–2012 – IR35 Forum established
In 2011, HMRC established the IR35 Forum in response to ongoing criticism and concerns about how the rules were administered. The Forum was intended to improve guidance and dialogue between HMRC and representative bodies.
The Office of Tax Simplification (OTS) reviewed personal service companies in 2011, but its recommendations did not lead to major legislative change. The original Chapter 8 framework largely stayed intact.
2012 – HMRC introduces Business Entity Tests
HMRC introduced its Business Entity Tests in May 2012 as part of an attempt to improve the administration of IR35 and give contractors an indication of their risk of an HMRC enquiry.
The IR35 Forum later judged the tests to be rarely used and not fulfilling their intended purpose. HMRC withdrew them from 6 April 2015.
2015 – government reopens the question of IR35 reform
HMRC published an IR35 discussion document in July 2015, inviting views on how to make the legislation more effective.
The work marked the beginning of the reform process that ultimately shifted responsibility for IR35 decisions away from contractors in parts of the labour market.
Why the off-payroll rules were created
By the mid-2010s, HMRC argued that private sector IR35 compliance was inadequate.
The department argued that many contractors continued to assess themselves as outside IR35, even when the working relationship resembled that of an employer-employee relationship.
HMRC also said the growing use of intermediaries was creating a significant compliance gap.
2016 – public sector consultation
In 2016, the government published a consultation proposing that responsibility for IR35 status decisions in the public sector should shift from the contractor to the engaging body.
This consultation marked the first formal step toward the off-payroll reforms.
The government responded by shifting responsibility for status decisions to the client, beginning in the public sector. This created a second legislative regime, separate from the original Chapter 8 rules.
2017 – public sector off-payroll rules
From 6 April 2017, public authorities became responsible for determining the IR35 status of contractors they engaged.
These changes now sit in Chapter 10 of ITEPA 2003. Instead of the contractor deciding their status, the client had to issue a formal Status Determination Statement and pass it to the fee payer.
If the role was inside IR35, the fee payer had to operate PAYE.
HMRC also released its CEST tool at this point to help organisations assess status.
2018 – CEST updated
Following criticism from practitioners and commentary in tribunal decisions, HMRC updated CEST in 2018 to better reflect developments in employment status case law.
2018 – private sector reform announced
The October 2018 Budget confirmed that the off-payroll reforms would be extended to medium and large private sector organisations from April 2020.
Small businesses were to remain outside the new regime.
2019 – major CEST rebuild
HMRC launched an enhanced version of CEST in November 2019 ahead of the planned private sector reforms.
HMRC said it had worked with more than 300 stakeholders on the changes, which were intended to make the questions clearer, reduce user error and allow the tool to consider more detailed information.
You can read our separate guide to these rules here: Off-payroll working rules.
For the practical mechanics and responsibilities under Chapter 10, see: Status Determination Statements and client responsibilities, our guide to what recruiters and clients need to know, and our explainer on CEST.
2020 – private sector reforms delayed
The private sector legislation was due to take effect on 6 April 2020.
In March 2020, the government postponed implementation by twelve months as part of its response to the COVID-19 pandemic.
2021 – extension to medium and large private sector clients
Following the public sector rollout, the government extended Chapter 10 to medium and large private sector organisations from 6 April 2021. Small private sector clients remain outside Chapter 10.
The private sector reforms were originally scheduled to go live on 6 April 2020, but were delayed by one year due to the COVID-19 pandemic.
Where the client meets the definition of a small company, the original Chapter 8 rules continue to apply, and the contractor makes their own IR35 determination.
The expanded rules introduced three key obligations:
- the client must determine the contractor’s status and issue an SDS
- the reasoning must be passed to every party in the chain
- the fee payer must operate PAYE if the engagement is inside IR35
HMRC has since published research into the impact of these changes, including behavioural shifts in hiring and contractor supply. The research is available on GOV.UK: Impact of the 2021 private sector reform.
If you need a summary of the small company exemption used in these rules, see our guide here: Small company exemption under Chapter 10.
2022 – repeal announced, then withdrawn
In September 2022, the government’s Growth Plan announced that the 2017 and 2021 off-payroll rules would be repealed, returning the system to a pure Chapter 8 model.
The contracting sector welcomed the announcement. However, the policy was reversed within weeks, following the fallout from the Liz Truss Budget.
The new Chancellor, Jeremy Hunt, confirmed that the repeal would not go ahead.
Chapter 10, therefore, remains fully in effect.
2024 – the IR35 offset reform
The Finance Act 2024 introduced an offset mechanism to address the double taxation that could arise when tax had already been paid before a later finding that the engagement was inside IR35.
For more information, read our guide to the IR35 offset and an expert’s view on what the offset fix means for the contracting market.
2024 – Supreme Court rules in PGMOL
The Supreme Court handed down its judgment in HMRC v Professional Game Match Officials Ltd in September 2024, clarifying important points on mutuality of obligation and control.
The case was returned to the First-tier Tribunal, which ruled in May 2026 that the referees’ individual match engagements were contracts for services, not contracts of employment. Read our PGMOL case summary.
2025 – company size thresholds increased
From April 2025, the statutory company size thresholds used to determine whether a company is small increased under the Companies Act.
To qualify as small, a company must meet at least two of the following: annual turnover of no more than £15 million (up from £10.2m), a balance sheet total of no more than £7.5 million (up from £5.1m), or an average of 50 or fewer employees (unchanged).
However, the new thresholds did not immediately change a client’s size for Off-Payroll purposes. Because the rules cover financial years and accounts filing dates, HMRC says the changes will not affect most clients until the 2027/28 tax year. Once they take effect, more private sector clients may qualify for the small company exemption, shifting responsibility for status determinations back to the contractor under Chapter 8. Read our small company exemption guide for the full timing rules.
Recent developments
Since the reforms took effect, there has been an ongoing debate about how well the rules are working in practice.
Various industry bodies repeatedly raise valid concerns about clients issuing blanket ‘inside IR35’ determinations, and taking a risk-averse approach to hiring contractors.
HMRC says the reforms have improved compliance and raised more tax, although their effectiveness remains under review.
For examples of enforcement and the scale of liabilities involved, see our coverage of renewed HMRC focus on how clients set IR35 status, the Welsh public body IR35 bill, and the Post Office historic settlement. We also covered HMRC projections around IR35 tax yield rising to around £1.5bn per year.
Political debate in 2026
IR35 remains a live political issue. Major parties frequently revisit it, particularly in the run-up to general elections, although meaningful reform has yet to materialise.
Reform UK recently stated that they would repeal IR35 entirely should they win the next election.
The Conservatives have also indicated they would look again at IR35 reform if elected.
At the same time, the government continues its wider review of employment status and related tax reform. Recent reports indicate that the employment status consultation timetable has been delayed until 2026.
The status of IR35 in 2026
- Chapter 8 applies where the client is small or where Chapter 10 does not apply. The contractor determines their own IR35 status.
- Chapter 10 applies to public authorities and to medium and large organisations in the private sector. The client makes the status decision and must issue an SDS.
Importantly, the term “IR35” now describes both regimes, even though the parties’ responsibilities differ significantly.