Corporate report

Impacts of the off-payroll working rules reform in the private and voluntary sectors

Published 15 December 2022

Executive summary

In April 2021, the administration of the off-payroll working rules, commonly known as IR35, changed for the private and voluntary sectors. This follows changes in the public sector in 2017. The government and HMRC remain committed to understanding the impacts of these changes and have published external research and we are now publishing our own analysis on the impacts of the 2021 reform in the private and voluntary sectors. This analysis does not cover impacts of the 2017 reform in the public sector, which has been released previously

Analysing data from before and after the reform we estimate around 130,000 workers are likely to have been affected by the April 2021 off-payroll reform. This includes those who continued to work through their own personal service company (PSC) but have been reported as deemed as an employee for tax purposes by their client, where their client or an agency in the supply chain would be responsible for Pay As You Earn taxes, and those who have moved to work as an employee of another organisation that is not their own PSC.

The analysis covers the period for the tax year following the reform as well as 18 months prior to the reform (October 2019 to March 2022). This is based on insights from external stakeholders that workers changed the way they provide their services ahead of the introduction of the reform.

The reform is estimated to have generated an additional £1.8 billion in tax revenue in the same period ^{[footnote 1]}.

We estimate client organisations have incurred an overall one-off cost of £90 million to £230 million to implement the reform. Clients have also spent a further £150 million to £370 million in the first year on operating the rules, which we expect to reduce over time. The range is based on the likely minimum and maximum number of clients who have been affected by the reform. The ongoing costs incurred by clients in relation to the reform would be (at least) partly counter-balanced by a saving for PSCs who no longer need to operate the rules, although we have not been able to quantify these savings.

The costs are varied across the population and the overall spend is partly driven by a small number of organisations spending larger sums, with around 10% of organisations accounting for 50% of costs and around a third of clients who have engaged PSCs having no ongoing costs to comply with the rules.

External research also suggests that around half of clients found the reform easy to implement, although around a quarter found it challenging. Nearly all those who used the education and support provided by HMRC found it useful.

Readers should take the estimates set out in this publication as indicators only of the most likely impacts of the reform given the inherent challenges in this work. These are most notably:

• we are unable to distinguish the impact of the off-payroll reform from other events which may have driven significant changes in the labour market such as the coronavirus (COVID-19) pandemic
• there is no legal definition of a PSC so we are unable to definitively identify in data those who should be affected by the rules

However, we are confident that we have seen an increase in overall tax paid by those who were most likely to be working through a PSC prior to the reform. This is based on objective criteria and we have been working with external stakeholders to ensure our approach to understanding the impacts of the reform is as robust as possible. Our methodology, including how we have identified likely PSCs, is explained later in this report.

Introduction

The off-payroll working rules were introduced in April 2000 to ensure that people working like employees, but through their own company or other intermediary, pay broadly similar Income tax and National Insurance contributions (NICs) as employees. Without these rules, people who work through their own limited company can pay lower amounts of tax even if they are working like an employee, by making use of the different allowances and rates available in Pay As You Earn (PAYE) Income Tax and NICs, Self Assessment Income Tax and NICs, Corporation Tax and Tax on Dividends.

There was evidence of wide-spread non-compliance with these rules and in 2015 HM Revenue and Customs (HMRC) estimated only one in ten PSCs were complying.

To improve compliance, the government reformed the rules on 6 April 2017 in the public sector by moving the responsibility for operating the rules from the worker’s intermediary (such as their own limited company, often called a personal service company or ‘PSC’) to the public authority engaging the worker’s services. On 6 April 2021, the government extended the reform to the private and voluntary sectors for medium and large sized client organisations. This was originally due to come into effect on 6 April 2020 but was delayed by 12 months to allow organisations time to deal with the coronavirus (COVID-19) pandemic.

While stakeholders have generally accepted that compliance with the original rules was low, there have been a range of views on the impacts of the reforms on clients who engage workers providing services through a PSC, workers, and the labour market ^{[footnote 2]}.

Understanding the impacts of the reforms continues to be a priority for the government. This publication sets out our estimates on the likely impacts of the April 2021 reform in the private and voluntary sectors. It focuses on the impacts from the most recent reform in the private and voluntary sectors and does not cover impacts from the public sector reform ^{[footnote 3]}. It includes estimates on:

• changes to the way workers provided their services
• additional tax revenue generated
• costs incurred in relation to the reform
• education and support provided by HMRC

External research also sets out further insights into how the rules are being implemented by clients who engage workers providing services through PSCs, the level of disputes occurring and challenges clients have experienced with implementing the rules. We will include findings from the external research in this publication where directly related to our analysis.

The outcomes of this work are feeding into targeted education and support to help customers to comply with the rules; and will help us to explore any opportunities to improve the way the rules work in practice. Our approach to understanding the impacts of the reforms follows our published evaluation framework which commits to undertaking evaluation in a proportionate and transparent way.

Findings

Changes to the way workers provide their services

The overall number of workers affected

In order to estimate the number of workers that have been affected by the reform, we have looked at workers who moved from being paid through their own PSC payroll to being paid by another organisation’s payroll during the period October 2019 to March 2022. This period was chosen as, although the reform did not come into effect until April 2021, there is evidence that many workers may have changed their employments in anticipation of the rule changes.

We have estimated 250,000 workers have moved from being paid through their own PSC payroll to being paid by another organisation’s payroll during the period October 2019 to March 2022. This includes those who are reported as continuing to work through their PSC but have been deemed as an employee for tax purposes by their client, and those who have moved to become an employee of another organisation which is not their own PSC. Where this publication refers to ‘being paid by another organisation’s payroll’ it covers both circumstances.

In order to estimate how many of these 250,000 workers have moved as a result of the reform we have estimated the number of workers that would have moved even in the absence of the reform based on trends in previous years. This suggests that around 130,000 (or just over half) of the observed 250,000 workers have moved as a result of the reform.

The sectors who have seen the highest proportion of their workers, who were previously working through PSCs, move to another organisation’s payroll are professional, scientific and technical; information and communication; transport and storage; finance and insurance; and administrative and support services. The sectors with the highest number of workers who have moved to another organisation’s payroll are professional, scientific and technical; and information and communication.

The estimated numbers of workers who may have been affected is broken down by years below:

	October 2019 to March 2020	April 2020 to March 2021	April 2021 to March 2022	Total (note 1)
Total number of PSC workers who have changed payroll	40,000	85,000	120,000	250,000
Number of PSC workers who would likely have changed payroll anyway	20,000	50,000	50,000	115,000
Number of PSC workers who have likely changed payroll as a result of the reform	20,000	40,000	75,000	130,000

Note 1: Numbers may not sum to the total due to rounding.

A further 23,000 workers have been reported in HMRC’s real time information data as being deemed an employee for tax purposes by a client as part of the off-payroll working rules. However, we are unable to identify a PSC associated to these workers which may mean they have been mistakenly identified, are working through a non-incorporated intermediary, or are a PSC but which does not meet our criteria for the purpose of this analysis. This includes those who are providing services to private, voluntary and public sector clients, so it is unlikely all would be affected by the April 2021 off-payroll reform. We are, therefore, reporting these figures separately.

While some workers have been affected by the reform, our estimates suggest this is only a subset of the wider PSC population and more PSC workers have been unaffected by the reform than affected. This is in line with external research published which suggests that while some organisations have changed their use of PSCs, they still remain a common way for medium and large clients in the private and voluntary sectors to engage contractors. Information on how we have identified the wider PSC population is explained in the methodology section of this report.

Our estimates also suggest that the numbers of workers affected by the reform only make up around 2.5% of the total self-employed workforce, which the Office for National Statistics (ONS) estimated to be around 5 million in the 3 months prior to October 2019. The numbers of workers affected by the reform also make up less than 1% of the total workforce, which the ONS estimated to be over 32 million at any point during the period October 2019 to March 2022.

We also expect there will be some workers who may have started working through a PSC around the time of the reform but, due to the reform, have chosen to start work in a different way. As full data is not available this has not been quantified here.

How workers are providing their services following the reform

Based on the total number of PSC workers who have changed payrolls we estimate the majority have done so by becoming an employee of an organisation that isn’t their own PSC (97%), while a minority have been reported as continuing to work through their PSC having been deemed as employed for tax purposes by their client (3%) ^{[footnote 4]}.

The ONS reported an increase in the number of individuals self-reporting as employees and a decrease in the number of individuals self-reporting as self-employed during the same time period that this analysis covers. Our estimated impacts of the off-payroll reform would account for some of the shift the ONS has estimated has taken place from workers self-reporting as self-employed to employed over the time period, but not all ^{[footnote 5]}.

Of those who have become an employee of another organisation, 65% have moved to organisations which are not agencies or umbrella companies (which could include becoming an employee of their client), 20% have moved to an umbrella company and 15% to an agency.

Further analysis suggests that not all those who have moved were still working in the same way by March 2022. Only around three-quarters of the number that moved to an umbrella company and around two thirds of the number that moved to an agency still worked that way in March 2022.

External research conducted with contractors, as well as this analysis, supports the notion that some workers have stopped working through their PSC and started working through an umbrella company as a result of either the 2017 or 2021 off-payroll reforms ^{[footnote 6]}. External research conducted with private and voluntary sector clients, however, suggests there has been limited change in the use of contractors working through umbrella companies.

The difference between the findings from HMRC’s analysis and the external research conducted with client organisations may be because a sizeable proportion of the clients surveyed may not have had knowledge of whether the contractors they engage were working through an umbrella company.

One concern of stakeholders has been that workers might move to disguised remuneration tax avoidance schemes following the reform. We estimate around 500 workers between October 2019 and March 2021 stopped working through their PSC and became an employee of another organisation that HMRC has identified as offering a disguised remuneration scheme ^{[footnote 7]}.

We would expect some of these workers to enter disguised remuneration regardless of the reform, and these may include some workers who have previously also worked through disguised remuneration schemes. That workers moved to an employer HMRC believes to be offering a disguised remuneration scheme does not necessarily mean that they all went on to use a disguised remuneration scheme. HMRC sees employers where some workers take up disguised remuneration and others do not. The Marketed Tax Avoidance report sets out the latest data on disguised remuneration schemes overall.

HMRC continues to tackle the use of disguised remuneration schemes and is focussed on stifling the supply and demand of these schemes by tackling the promoters who sell them and by dissuading customers from entering into them.

The table below shows the populations of workers impacted in different ways, as described above. This will include those who would have changed the way they work regardless of the reform and does not include those who may have decided to not start working through a PSC because of the reform.

	Number of workers (October 2019 to March 2022)
Workers who have moved from their own PSC payroll to an umbrella payroll	50,000
Workers who have moved from their own PSC payroll to an agency payroll	35,000
Workers who have moved from their own PSC payroll to a different type of organisation’s payroll (including client)	150,000
Workers who have moved from their own PSC payroll to an organisation offering a disguised remuneration scheme [footnote 8]	500
Workers who have been reported as deemed as employed for tax purposes by their client [footnote 9]	8,000
Workers we have not been able to match to a PSC but have been reported as deemed as employed for tax purposes by their client	23,000
Total workers who have moved from their own PSC payroll to another payroll	250,000

We have also looked at whether the reforms may have had an impact on the number of workers who stop working through their own PSC payroll but do not move to another organisation’s payroll, for example those moving into retirement or leaving the labour market.

To understand whether more workers than usual have left PSCs and moved to pensions, or left UK payrolls altogether, we have compared the numbers who have made these changes since October 2019 to previous years.

We estimate no difference in the number of workers moving from PSCs to pensions before or after October 2019, with around 10,000 workers moving from their own PSC payroll to a pension in any given year, both before and after October 2019.

We also estimate no increase in the numbers moving from their own PSC payroll to no payroll. Prior to the tax year 2019 to 2020 we estimate around 70,000 workers moved from their own PSC payroll to no payroll in any given year. For the tax year 2019 to 2020 this number remained the same, before falling in the tax year 2020 to 2021. We do not yet have full data for the tax year 2021 to 2022. Some of these individuals may have started working as sole traders, but full data is not yet available.

Additional tax revenue

We estimate an additional £1.8 billion has been generated in tax revenues in the period October 2019 to March 2022 as a result of the reform. This comes from increases in PAYE Income Tax and NICs, and reductions in Corporation Tax, Self Assessment Income Tax, Tax on Dividends and Value Added Tax (VAT) as a result of the reform.

The overall revenues are broken down by years below:

	October 2019 to March 2020	April 2020 to March 2021	April 2021 to March 2022	Total
Overall change in total tax revenues	£50 million	£500 million	£1.3 billion	£1.8 billion

Including the 23,000 workers who were reported as deemed as employed for tax purposes by their client but whom we are unable to associate with a PSC would increase the overall additional revenues by £40 million overall.

This is higher than we estimated in spring 2021, which was for the reform to generate around £800 million in additional tax revenues up to the end of March 2022 ^{[footnote 10]}. The majority of the additional revenues identified in our analysis comes from more changes taking place ahead of the introduction of the reform than we had expected.

Costs incurred in relation to the reform

Based on external research published, we estimate medium and large sized client organisations who have engaged workers providing their services through PSCs have incurred a total one-off cost of £90 million to £230 million on the implementation of the 2021 off-payroll reform. The range is based on the likely minimum and maximum number of clients who have been affected by the reform.

In addition to these one-off costs, we estimate clients collectively have spent £150 million to £370 million on the ongoing operation of the reform during its first year, although based on evidence from the reform in the public sector, we expect this annual amount will likely reduce over time. On average this accounts for around 0.002% of average annual turnover reported by individual organisations in the published external research, and 0.026% of average annual turnover reported by groups.

We would also expect this to be (at least) partly counter-balanced by a saving for PSCs who no longer need to operate the rules, although we have not been able to quantify these savings.

The costs are varied across the population and external research suggests these costs are partly driven by a small number of organisations spending larger sums, with around 10% of organisations accounting for 50% of costs. These organisations are more likely to be larger organisations who engage higher numbers of contractors and are in ‘desk based’ sectors ^{[footnote 11]}. Furthermore, nearly 45% of organisations report spending less than £1,000 on the implementation of the reform and around a third report having no costs for the ongoing operation of the reform.

These costs are higher than the estimates of administrative burdens we included in spring 2021 in our published Tax Information Impact Note (TIIN) because they include a wider category of costs, whilst the TIIN is based on the minimum additional spend required to comply with the legislation.

Based on activity to date, HMRC expects its own costs to remain in line with the published TIIN, which estimated HMRC would spend in the region of £18.5 million between the tax years 2018 to 2019 and 2025 to 2026.

This does not represent a full cost-benefit analysis as we do not have enough evidence to be able to estimate the actual spend by other parts of the labour supply chain. We expect employment agencies and PSCs will have incurred a one-off cost, though of a smaller magnitude than the amount spent by clients. We also expect employment agencies would have ongoing costs of a smaller magnitude than clients, and PSCs will have ongoing savings from no longer being responsible for administering the rules.

HMRC support

We provided an extensive programme of education and support to help customers to prepare for and comply with the reform, and we are continuing with support for customers where it is needed. This has been built on customer insight, with information gathered on a regular basis from a range of sources.

During the period January 2020 to December 2021, we delivered a range of support including, but not limited to:

• 62 webinars
• 30 workshops
• more than 100,000 letters and emails to organisations
• 949 calls to organisations
• 47 jointly delivered stakeholder events
• updates to guidance including specific factsheets, flow charts and case studies for different sectors and for contractors
• regular bulletins in our communications
• regular social media posts and blogs

In addition, we updated our Check Employment Status for Tax (CEST) tool in November 2019, which is a free digital tool to help individuals and organisations to make decisions on employment status for tax purposes.

External research published today suggests that around half of clients found the reform easy to implement, with around a quarter finding it difficult. The research also shows the majority of clients used some element of HMRC support and education, and out of those who used the support, at least 88% found it useful.

Following recommendations from the Public Accounts Committee, HMRC is refocusing its efforts to support customers who still require help to comply with the rules. HMRC is considering, based on the latest insights and observations of our past support, the most appropriate way to do this, including through improvements to our CEST tool.

Methodology

To understand the impacts of the reform, a range of data sources have been considered, including HMRC-commissioned external research, HMRC internal data and robust external data sources. We have also engaged with a number of external stakeholders over the methodology behind our analysis to ensure its approach is robust.

Where research has been used, this has been delivered by an external independent research agency. The bulk of the research commissioned by HMRC has been carried out with client organisations, as they have the most responsibilities under the reform and will have the best overview of how they are engaging their workers. However, research with other parts of the labour supply chain including agencies and contractors has also informed our understanding of the impacts of the reforms.

Changes to the way workers provide their services

It is an expected response to the reform that organisations and workers will consider the best way for workers to provide their services whilst being compliant with the tax rules.

The diagram above shows some of the expected ways a worker may work following the reform:

• workers may continue to work through their PSC whilst being deemed as employed or self-employed for tax purposes by their client. The PSC may engage directly with the client or through an agency, and if deemed employed for tax purposes the client or agency will operate PAYE. If deemed self-employed for tax purposes the PSC is responsible for paying tax and NICs

• workers may stop working through their PSC and so the off-payroll working rules will not apply. They may:

  • move to work through an agency and the agency will consider the normal employment status rules or the agency legislation

  • move to work through an umbrella company, where they would usually be an employee of the umbrella company

  • move to work directly for the client and the client would consider the normal employment status rules

There is no legal definition of a PSC and it is not possible to identify directly from HMRC data which companies are operating as PSCs or which PSCs provide services to medium and large sized clients and so may be affected by the reform. To identify workers most likely to have been impacted by the reform we have applied a number of objective criteria (as agreed with the Office for Budget Responsibility during its scrutiny of the policy costings) to data from Companies House, PAYE, Self Assessment tax returns and Corporation Tax returns to identify those most likely to be working through a PSC.

These assumptions include limits on turnover (£500,000), profits (£500,000), assets (£150,000), the number of directors and employees a business has (one or two directors or employees), and whether a worker is on their own PSC payroll. The assumptions for turnover, profits and assets are based on the tax year 2015 to 2016 figures, index linked.

This identified a population of around 1.1 million individuals who we estimate are likely to have been working through a PSC at some point during the period April 2015 to March 2021. A further 700,000 met the same assumptions but have not had their own PSC payroll and have not been included in the analysis, as we expect those most likely to be working through a PSC, rather than be a different type of business, will have had their own payroll to be able to pay themselves a small salary.

From this population ^{[footnote 12]} we have identified those workers who have moved from working through their own PSC payroll to another organisation’s payroll in the year after the reform was introduced (April 2021 to March 2022). We have also included those who changed payrolls ahead of the reform being implemented (April 2020 to March 2021) and, following insight from external stakeholders, those who changed payrolls prior to the original implementation date for the reform (October 19 to March 2020).

This includes those who are reported as continuing to work through their PSC but have been deemed as an employee for tax purposes by their client, and those who have stopped working through their PSC and have moved to become an employee of an organisation which is not the PSC they were working for before the reform.

The analysis does not include those who have been reported to HMRC as deemed as an employee by their client where we have not been able to identify them as having their own PSC. We have reported these figures separately throughout the findings, and have only included those who are reported as deemed as an employee by their client for 3 months or longer, to account for those who may have only been reported as deemed as an employee in error.

This number of workers who have changed payrolls is reduced to account for those who are likely to have moved payrolls regardless of the reform. This has been done based on the average number of workers who have worked through PSCs and changed payrolls in previous years. Given other events in the labour market at the same time, most notably COVID-19, it is not possible to know for certain the extent that the off-payroll reforms has caused any changes and so this analysis should only be taken as an indicator of likely impacts.

It is also likely that there will be some workers who may have started working through a PSC around the time of the reform, had the reform not been in effect, but have chosen to start work in a different way. Full data is not available on the current level of new PSCs, so this has not been quantified here.

It is not possible to identify in HMRC data whether those who have changed payrolls as a result of the off-payroll reform should have been deemed as employed for tax purposes or self-employed for tax purposes when working through their PSC.

Additional revenue generated

To estimate the additional revenue generated from the reform we have analysed the changes to tax paid by the population identified as having moved from their own PSC payroll to another organisation’s payroll. The methodology for how this group has been identified is set out above.

This includes the additional PAYE Income Tax and NICs paid, as well as the reduction in Corporation Tax, Self Assessment Income Tax and Tax on Dividends. Full data for Corporation Tax, Self Assessed Income Tax and Tax on Dividend payments are not yet available so an assumption has been made for reductions to these taxes for the year April 2021 to March 2022 based on previous years’ data. We intend to update this in a future update to this publication.

Adjustments have been made to the total amount of tax paid per worker to account for changes to tax paid which may have happened regardless of the reform. This is based on analysis of changes to tax paid by a control group of individuals who have remained on their own PSC payroll before and after the reform.

To estimate the reduction in VAT, we identified workers who moved from a VAT-registered PSC payroll to the payroll of an organisation in the finance and insurance sectors ^{[footnote 13]}. We applied estimated rates of unrecoverable VAT to the turnover of these PSCs prior to the workers’ moving payroll. Then we reduced the estimate to account for those who are likely to have moved payrolls regardless of the reform, in line with the reduction in total numbers of workers moving payroll.

The revenue identified is on a tax liabilities basis, which means the estimates align to the time period when the activity takes place which gives rise to the tax owed to HMRC, not when the tax is collected.

Costs incurred in relation to the reform

We have estimated the overall cost incurred by clients on the implementation and ongoing operation of the reform until March 2022. These costs might include, for example, training, making adjustments to payroll systems and making determinations.

Estimated costs are based on the average (mean) costs identified in HMRC’s externally commissioned research ^{[footnote 14]}. These have then been applied to the number of medium and large sized organisations likely to have engaged PSCs prior to the reform, and therefore organisations that are likely to have had to consider the rules.

We estimate the number of organisations to be between 21,000 and 53,000. This is based on data held by HMRC and a screening question asked in the research which suggests around 63% of medium and large sized organisations had not engaged PSCs in the two years prior to the reform ^{[footnote 15]}.

We have also included information on the amount HMRC has spent implementing the reform.

Based on the information available, it is not possible to undertake a full cost benefit analysis of the reforms. HMRC does not have data that will enable it to robustly estimate the overall amount that employment agencies spent on the reforms; and it is also not possible to estimate any costs spent by PSCs on understanding the changes and any ongoing savings made by PSCs who no longer need to operate the rules.

The costs incurred in relation to the reform set out in this publication differ to the administrative burdens set out in the TIIN published in spring 2021. This is because this analysis includes a wider category of costs, whilst the TIIN is based on the minimum spend required to comply with the legislation.

The support provided by HMRC

We have set out a summary of the education and support HMRC provided to customers to prepare for, and operate the reform, and research findings which provide insights into the use of and helpfulness of those resources.

Future update

We intend to update this publication in future to include new data and information.

Glossary

Agency: agencies are generally recruiters who look to supply engagers (clients) with flexible labour. There can be several agencies in the supply chain between the engager and the individual providing their labour. A worker may be an employee of the agency or not.

Client: the organisation in which a worker is supplying their services, also sometimes known as an engager or end client.

Contractor: an individual worker providing flexible services to an engager (client), either directly or through an agency or other intermediary. In this publication contractors are referred to as workers.

Corporation Tax : tax paid on the profits of a business.

Cost–benefit analysis: a way of comparing the total costs of a project or intervention with the rewards of the project or intervention. A full cost-benefit analysis might include different types of costs and benefits, such as direct, indirect, intangible and opportunity costs.

Deemed employer: the organisation responsible for operating PAYE for workers who have been deemed as employed for tax purposes by their client. This could be a client or an employment agency in the chain.

Disguised remuneration: tax avoidance schemes that claim to avoid the need to pay Income Tax and NICs on remuneration by paying an amount alleged to be non-taxable (often involving a loan or other payment, sometimes from a third party, which is unlikely to ever be repaid).

Employee for tax purposes: where this publication refers to this or employed for tax purposes, it means where a client has decided a worker providing services through a PSC is working like an employee based on the general employment status rules for tax purposes. This might also be known as ‘inside the rules’ or ‘inside IR35.’

National Insurance contributions (NICs): mandatory contributions paid to HMRC by individuals (employee NICs) and employers (employer NICs), which can give entitlement to certain benefits and state pension.

Off-payroll working rules (IR35): rules which ensure that individuals who work like employees, but through their own limited company or other type of intermediary, pay broadly the same Income Tax and National Insurance contributions (NICs) as direct employees. The rules are commonly known as IR35 and were introduced in 2000. These were then reformed for the public sector in April 2017 and for medium and large client organisations in the private and voluntary sectors in April 2021.

Pay As You Earn (PAYE): a system of paying Income Tax and NICs in which an employer (or deemed employer) pays an individual’s Income tax and Employee NICs directly to HMRC. These are then deducted by the employer from the individual’s salary or fees. Employer NICs is then paid in addition by the employer. Also known as payroll taxes.

Payroll: a system where PAYE is operated.

Personal service company (PSC): a limited company which a worker typically controls and has some interest in, through which the worker provides their services.

Real Time Information (RTI): part of the payroll process where those responsible for deducting PAYE taxes provide information to HMRC. There is a marker in RTI to identify all payments which are subject to tax as part of the off-payroll working rules reforms (ie have been deemed as ‘employed for tax purposes’).

Research: where this publication refers to research, it means HMRC-commissioned research with an external independent research agency.

Self Assessment: a system HMRC uses to collect Income Tax and NICs from those not subject to PAYE. Individuals must complete a tax return for each tax year ending 5 April by 31 October (paper) or 31 January (online) following the end of the tax year.

Self–employed for tax purposes: where this publication refers to this, it means where a client has decided a worker providing services through a PSC is not working like an employee based on the general employment status rules for tax purposes. This might also be known as ‘outside the rules’ or ‘outside IR35.’

Tax avoidance: tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended. It often involves contrived artificial transactions that serve little or no purpose other than to produce this advantage.

Tax information and impact note (TIIN): the government publishes TIINs ahead of policies coming into effect, to set out the expected impacts of the changes.

Tax on Dividends: tax paid on any dividend payments an individual receives through shares in a company. An individual can earn some dividend income each year without paying tax.

Umbrella companies: generally accepted to mean a UK limited company which acts as an employer to a number of individuals, meeting PAYE and other requirements where operating legitimately. It signs contracts to provide the individual’s labour to engagers (clients), either directly or through another intermediary such as a recruitment agency.

Worker: where this publication refers to worker it means an individual who is providing their services to a client or employer. They may work as an employee of an organisation or as a contractor.

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1. This is on a tax liabilities basis, which means the estimates align to the time period when the activity takes place, not when the tax is collected. ↩

2. There has also been significant parliamentary interest on the impact of the reforms including a number of parliamentary reports. At the time of publishing, the latest includes reports by the Public Accounts Committee, the House of Lords Finance Bill Sub-Committee, and the National Audit Office. ↩

3. We have already published external research on the short and long-term impacts of the April 2017 reform in the public sector and released HMRCs internal analysis on the numbers of workers affected and the additional revenue generated. ↩

4. Including the additional 23,000 workers who have been reported as being deemed employed for tax purposes by their client but who we cannot match to a PSC would increase this percentage to around 11%. ↩

5. Employee numbers increased by around half a million, while self-employed fell by around three quarters of a million. As the bulk of the fall in self-employed numbers took place during 2020, when other drivers in the labour market will have been impacting workers decisions, such as the coronavirus (COVID-19) pandemic, it is difficult to draw definitive conclusions on the extent this switch may have been caused by the off-payroll reform. On 6 September the ONS provided evidence to the House of Lords on the switch in the way workers report providing their services, including the notion that some of the shift will be a reclassification by workers while some will be an actual change. ↩

6. The research conducted with contractors suggests that in March 2021 22% of all umbrella contractors had started to work through an umbrella company due to either the 2017 off-payroll reform, the 2021 off-payroll reform or the loan charge. It does not provide data for impacts of the 2021 off-payroll reform for the period April 2021 to March 2022. Fewer than 2% of contractors who took part in the survey said they had been affected by the loan charge and had consequently joined an umbrella company ↩

7. There will be some overlap between this population and the umbrella population. ↩

8. This includes PAYE and non-PAYE disguised remuneration schemes, for example schemes offered by umbrella companies and non-umbrella companies. Full data for the tax year 2021 to 2022 is not available. ↩

9. There may be some overlap between this population and other populations. ↩

10. The revenues estimated in the Tax Information Impact Note (TIIN) published in spring 2021 estimates slightly higher revenue, at around £1 billion up to the end of March 2022, as this is on a slightly different basis and is estimated based on National Accounts rather than liabilities. The National Accounts Basis, on which the Office for National Statistics records the public finances, aims to reflect, in the case of SA Income Tax and dividend tax, the timing of tax receipts, and in the case of PAYE Income Tax/NICs and Corporation Tax, the timing of the economic activity giving rise to the tax liability. ↩

11. Desk based sectors include those in finance and insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities; and information and communication. ↩

12. We have not included those who claimed covid support payments in any of the analysis because they saw atypical variations in their turnover and taxes. For that reason, they have not been used as part of the comparison of tax levels with PSCs whose owners switched onto other payrolls. They are included in the wider population of PSCs identified. ↩

13. Financial services and insurance are VAT exempt; however an organisation selling such services may still pay VAT on services provided to it by a PSC, which it cannot reclaim. If a worker moves from their PSC payroll to the payroll of an organisation, VAT is no longer chargeable. ↩

14. The question in the survey in relation to one-off costs for implementation was as follows: ‘ What would you estimate to have been the total costs incurred in relation to the implementation of the off-payroll working rules for off-payroll contractors? This might include costs of time spent making off-payroll working rules status determinations, training staff on off-payroll reforms, external consultancy and insurance costs and other one-off implementation costs. This does not include monthly operating costs since April 2021.’ The question in relation to ongoing costs was as follows: ‘And what would you estimate to have been the average monthly operating costs incurred in relation to the ongoing administration of the off-payroll working rules for off-payroll contractors since April 2021? This should be additional costs above the implementation costs asked about earlier’. ↩

15. A further 18% did not meet the size criteria to be in scope of the reform. ↩