by varispeed | 2025-04-14 16:12:26+00:00
Thanks for the thoughtful response. I think you're still underestimating how fundamentally IR35 reforms changed the environment for small business operators in IT, especially since 2021.

> I don’t know a single IT contractor that lost that ability.

I do. In fact, I knew dozens of people who ran small, legitimate limited companies - offering high-quality services across IT disciplines - who were forced to shut down or stop trading as businesses once clients tightened their risk assessments. In the early days, yes, some niche contractors were spared because they were too hard to replace. But even that dried up as corporate legal teams standardised engagement models and de-risked by banning sourcing services from small business entirely.

> You also seem to suggest that IR35 prevented contractors from claiming expenses back in tax, and that simply isn’t true either.

This is misleading. If you’re inside IR35 or forced into an umbrella, you can only claim expenses on the same terms as an employee of the client. That means you can't offset training, equipment, home office, insurance, downtime, software etc. - because your business isn't recognised as a business anymore. And if you can't make profit, you have nothing to deduct from anyway.

> you’re overlooking the point that IR35 only affects contractors working on BAU or who have worked with the same company for more than 2 years.

This is based on a fundamental misunderstanding. There is no “2-year” IR35 rule. That might relate to travel expenses. IR35 assessments depend on control, substitution, and mutuality of obligation. Even short, project-based work can be deemed inside. And under Chapter 10, only clients carry the liability - so they default to "inside" for anything remotely borderline, including repeat work.

And that’s exactly the issue: having loyal clients and repeat business — something any serious business would strive for — is now penalised. The system structurally disincentivises hiring genuine small consultancies, because clients now carry legal and tax risk for treating you as "outside." So naturally, they avoid it.

And that quote about companies “describing work in ways favourable to IR35” to avoid falling foul of the rules - you realise you’ve just described a legal minefield that only small businesses are forced to navigate? If an individual or a small consultancy tries to deliver a long-term service or repeat work, they're suddenly in danger of being labelled "too BAU" and dragged into inside IR35 or worse, accused of misrepresentation.

Meanwhile, large consultancies are completely exempt. They can supply entire teams of workers to perform exactly the same repeat, embedded, long-term services - even effectively occupying roles inside the client’s organisation - and no one blinks, because the worker isn't the owner of the delivery company. IR35 doesn't apply.

So what you're pointing out as a "grey area" for independents is actually a core business model for Accenture, Capita, Deloitte, etc. - and it's legally protected. They can pump in as many BAU bodies as they like, make profit to their heart's content, and face none of the scrutiny aimed at smaller suppliers. It's a structural bias against worker-owned businesses and it's about making sure the same work flows through corporate channels, where the big business win - and independent economic actors are locked out.

> But it wouldn’t have been catastrophic for the contract market had the employment bubble not also pop shortly afterwards.

That reverses cause and effect. IR35 was the trigger. It removed the incentive to engage skilled local contractors as businesses. Clients - especially in the public sector - stopped hiring small operators entirely to avoid compliance risk. The result wasn’t just tighter budgets - it was the structural removal of independent contracting as a viable model.

And just as IR35 pushed domestic professionals out of the market, post-Brexit immigration reforms ("Boriswave") made it easier for companies to import overseas workers on lower salaries - with sponsorship pathways explicitly designed to undercut local rates. So the market didn't just shrink—it shifted, away from experienced, independent professionals toward cheaper, controllable labour with fewer rights and no negotiation leverage.

The combination was catastrophic. It collapsed the domestic contractor market from both ends—removing the supply of viable independent businesses, and removing the demand for them by creating cheaper alternatives. That wasn't an unfortunate consequence — it was a predictable outcome of policies designed to centralise control and reduce labour costs at all levels whilst maximising corporate profits.

> Contracting is still better than being employed.

That may be true for a small segment of high-end day-rate earners, but it ignores how many people used contracting as a sustainable, long-term way to build independent businesses. For them, IR35 removed the very basis of that independence-profit, autonomy, and client trust.