Gov.uk still struggling with IT contractor tax rules

The UK government continues to face challenges in implementing the IR35 tax rules for IT contractors, despite the rules being introduced years ago. IR35 has been widely criticized by freelance tech workers who feel it removes the tax benefits of contracting without providing the employee benefits of in-house roles. The Foreign, Commonwealth and Development Office (FCDO) is currently reviewing its implementation of IR35 for the second consecutive year.

In its 2024-25 annual report, the FCDO stated that 243 workers were found to be in scope of IR35 after a full review of all IR35 off-payroll status determinations. This led to a significant reduction in engagements previously deemed out-of-scope. However, the number of workers determined as in-scope of IR35 has now increased to 441 in the latest 2025-26 figures.

The FCDO is also continuing to review HMRC's interpretation of the rules. Tax advisory company IR35 Shield CEO Dave Chaplin noted that the Foreign Office's IR35 problems are becoming increasingly difficult to explain away, with the figure of contractors outside IR35 collapsing to just 12. A Freedom of Information request revealed that the FCDO's process used HMRC's Status Tool (CEST), which has seen a 70 percent drop in usage over two years.

The government has been spending millions of pounds to cover tax owed for individuals wrongly assessed as self-employed under IR35.