Background to Employment Status Consultation
The consultation on employment status was previously slated for 2025 but was delayed due to a parliamentary deadlock involving the House of Commons and the House of Lords over the Employment Rights Bill.
Now expected in early 2026, the process was initially viewed as an opportunity to clarify the definition of self-employment and, by extension, improve the implementation of IR35.
Industry experts had anticipated this review might lead to meaningful clarification, particularly given challenges around correctly determining employment status for tax purposes. However, the likelihood of major IR35 reform or repeal during this period remains slim, given the current political and legislative landscape.
Legislative Progress and Delays
The passage of the Employment Rights Bill has opened the way for the government to address employment status issues. However, stakeholders contend that simply moving forward with the consultation, without broader reform, is insufficient. Delivering a comprehensive solution has proved challenging.
There are reported concerns within the government about the complexity involved in merging the tax and employment rights frameworks, with officials indicating limited appetite for tackling both issues at once.
The industry-led Employment Status Consultative Committee continues to call for unified reform, but there is no formal commitment from policymakers to proceed accordingly during this Parliament.
Scope of the Consultation and Tax Status
Initial indications suggest the forthcoming consultation may adopt a narrow focus, limiting its inquiry to employment rights rather than undertaking a holistic review of both employment and tax status.
This approach would leave the primary element affecting IR35 tax status outside its remit. Tax status is central to the IR35 rules, which examine whether workers supplied via intermediaries should be treated as employees for tax purposes.
Failure to address this issue means the most significant sources of confusion and dispute are likely to persist.
Ongoing Challenges for Contractors
Contractors operating through limited companies or as sole traders remain exposed to risk and uncertainty. Those viewed as self-employed for employment rights purposes can still be considered ‘tax employees’ under current rules, creating a persistent mismatch.
While reforms may improve protections for individuals at risk of false self-employment or exploitative practices, they do little to assist highly skilled, genuinely autonomous contractors.
These individuals typically take on significant commercial risk, manage their own workloads, and provide specialist expertise, yet remain vulnerable to ambiguous determinations under the present system.
Systemic Impacts and Legal Complexities
By failing to address tax status, the government risks perpetuating a system in which disputes are commonly resolved through the courts, with conflicting case law and shifting legal standards.
This situation increases legal costs, burdens tribunals, and drives businesses toward blanket IR35 determinations that reduce flexibility and discourage self-employment. A reliance on fragmented case law, in the absence of modern legislative definitions, means both contractors and clients can face years of uncertainty over status and obligations.
The original aim of providing clarity through statutory tests for self-employment appears unlikely to be realised if reforms do not include tax considerations.
Policy Outlook and Contractor Advocacy
The Labour government, elected in July 2024 on a platform of strengthening workers’ rights, has prioritised employment reforms through the Employment Rights Bill.
However, many within the contracting and recruitment community emphasise that only integrated reform acknowledging the interdependence of employment rights and tax status will resolve systemic problems.
Industry groups, professional associations and policy advisers urge policymakers to use the forthcoming consultation as an opportunity to create modern, fair, and consistent frameworks reflecting contemporary working practices. Ensuring genuine independent contractors are recognised and appropriately taxed remains a key concern.
Final Summary
The delay in launching the employment status consultation has refocused attention on deeper structural challenges within the UK’s approach to IR35. Although the passage of the Employment Rights Bill has paved the way for review, industry experts believe that reforms limited to employment rights without consideration of tax status do not address contractors’ primary difficulties.
Ongoing uncertainty is expected, as legal ambiguity and divergent interpretations of status continue. Contractors, recruiters, and businesses await greater clarity that better aligns with modern labour market flexibility. For those seeking up-to-date insights on IR35, tax, and contracting, tools such as the Pie app offer valuable resources.
