Recommendation 3

HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, may lead to changes in behaviour by both workers and hirers. In some cases, contractors have reported that their last clients had stopped all use of PSCs, while some contractors have increased their rates or avoided work if it is within scope of the IR35 rules. Such behavioural impacts 6 Lessons from implementing IR35 reforms could have knock-on consequences for workers and labour markets, such as loss of work or ability to work flexibly. HMRC has not carried out research into these types of wider impacts, and it is not convinced by evidence provided by others even where this indicates there may be significant issues. HMRC is also too dismissive where a significant minority of people and businesses report being adversely affected. Recommendation: HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, to check it is being applied as intended and not adversely affecting employment opportunities.