In April 2021, the UK government extended the off-payroll working rules (IR35 reform) to the private sector. This was the most significant change to contractor taxation in over a decade. Previously delayed from April 2020 due to the pandemic, the reform fundamentally altered how IR35 determinations work for medium and large businesses.
What changed
Before April 2021, contractors working through their own limited company in the private sector were responsible for determining their own IR35 status. After the reform, this responsibility shifted to the end client for medium and large businesses. The client must now issue a Status Determination Statement (SDS) for each contractor engagement, specifying whether the role is inside or outside IR35, along with the reasoning behind the decision.
The blanket ban problem
Many large organisations responded to the reform by issuing blanket determinations, declaring all contractor roles inside IR35 regardless of the actual working practices. This approach was driven by risk aversion rather than genuine assessment. Banks, government departments, and large consultancies were among the first to implement blanket bans, pushing contractors into umbrella companies or onto fixed-term employment contracts.
Market impact
The reform caused a significant shift in the contractor market. Day rates for inside IR35 roles increased as clients recognised they needed to offer higher gross rates to attract experienced contractors. Some contractors chose to take permanent employment rather than accept inside IR35 terms. Others focused exclusively on contracts with small private-sector clients, where the old self-assessment rules still apply.
Where we are now
Several years on, the market has largely adapted. More clients are making individual assessments rather than blanket determinations, and the proportion of outside IR35 roles has stabilised. Contractors who can clearly demonstrate their self-employment status through genuine substitution rights, limited client control, and project-based deliverables continue to secure outside IR35 engagements.