The off-payroll working rules: the 2017 and 2021 reforms explained

The off-payroll working rules are the mechanism through which IR35 is now applied for most engagements. They do not change the test of whether a contractor is inside or outside the intermediaries legislation. They change who decides, and who pays if the decision is wrong.

The public sector, 2017

From 6 April 2017 every public authority engaging a contractor through a personal service company became responsible for deciding whether the engagement fell inside IR35. Where it did, the fee payer, usually the agency closest to the contractor's company, had to operate PAYE and National Insurance on the payments. HMRC released the check employment status for tax tool, CEST, to support the decisions. The archive's reporting from 2017 and 2018 records what followed: blanket inside determinations by NHS trusts and departments unwilling to carry the risk, contractors leaving public sector work, projects delayed, and a tool whose answers advisers regarded as unreliable. HMRC's own account was that the reform raised an additional £410 million in its first year with little disruption.

The private sector, 2021

The consultation on extending the rules to the private sector opened in May 2018. The Budget of October 2018 confirmed the extension for April 2020, restricted to medium and large clients, and the pandemic delayed it a further year. From 6 April 2021 private sector clients above the small company thresholds took on the same obligations as public bodies, with a requirement to issue a status determination statement setting out the decision and the reasons, and a dispute process through which the contractor can challenge it. Clients must take reasonable care; a client that does not becomes liable for the tax itself.

What changed in practice

Large engagers responded in three ways. Some banned personal service companies outright and moved contractors to umbrella employment or the payroll. Some ran every engagement through CEST and treated its answer as final. A minority built a genuine assessment process and continued to engage outside-IR35 specialists where the facts supported it. The mix shifted in the industry's favour from 2024 as businesses learned the rules, and recruiters reported more outside-IR35 project roles in 2026, though the legislation itself has not moved.

The public sector's own bill

The most striking consequence has been the state's inability to apply its own rules. HMRC has assessed government departments and public bodies for around £400 million in tax and National Insurance on their off-payroll mistakes since 2017, including £104 million at the Post Office, a liability the department has said it will not offset against tax already paid by the contractors concerned. The contractor bodies cite the figure as the best argument that a test the state cannot apply should not be imposed on business.

Current position

The small company thresholds rose in April 2026 to £15 million turnover and £7.5 million balance sheet, returning responsibility to contractors engaged by an estimated 14,000 newly small businesses. The Treasury reaffirmed enforcement as a compliance priority in a letter to accounting officers on 19 June 2026 and ruled out a review of the rules on 30 June. The articles below run from the 2016 consultation to the present.