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Methodology note

Abolish IR35 rules: calculation note

Assumptions behind the Abolish IR35 rules scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Abolish IR35 rules

Central fiscal result

+GBP 3.5bn - Net fiscal impact in 2027-28

Low case: +GBP 1.0bn. High case: +GBP 8.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • IR35 and off-payroll reforms are abolished.
  • No replacement status test is modelled.
  • Income tax and NI leakage are the main cost.
  • Private compliance savings are not fiscal receipts.

Affected population

  • Affected units are contractors, personal service companies and client firms.
  • Professional services, IT and project work are most exposed.
  • PAYE employees are indirectly affected through substitution risk.
  • HMRC enforcement workload changes materially.

Gross impact

  • Central cost assumes GBP 3.5bn of annual tax leakage.
  • Low case assumes only genuine contractors respond.
  • High case assumes wider employment-to-contractor substitution.
  • Compliance savings are economic, not fiscal.

Fiscal build-up, central case

  • Income tax and NI leakage: +GBP 3.8bn
  • Corporation tax receipts on companies: -GBP 0.4bn
  • Administration saving: -GBP 0.1bn
  • Avoidance enforcement cost: +GBP 0.2bn

Central net impact: +GBP 3.5bn in 2027-28.

Behaviour and pass-through

  • Low case assumes informal anti-avoidance remains effective.
  • Central case assumes meaningful but contained incorporation response.
  • High case assumes large relabelling of employment relationships.
  • No productivity gain is counted as a fiscal offset.

Phasing

  • 2026-27: +GBP 0.7bn. Preparation or partial implementation.
  • 2027-28: +GBP 3.5bn. Main scenario year.
  • 2028-29: +GBP 4.5bn. Behaviour and pass-through develop.
  • 2029-30: +GBP 5.0bn. Steady-state uncertainty persists.

Main source groups

  • S1: Reform Contract gives the abolition pledge.
  • S2: HMRC ready-reckoners inform tax-rate leakage scale.
  • S3: Tax-audit and taxable-income studies inform avoidance and reporting-risk assumptions.
  • S4: No official Reform replacement test was found.
  • S5: Affected contractor microdata require HMRC RTI and company data.