Jun 20, 2023 6 min read

Impact of IR35 Legislation on Businesses: Real Examples & Stats

The introduction of IR35 legislation has brought about significant changes in businesses and industries, especially those heavily dependent on independent contractors. With the objective of combating tax avoidance by tackling the misclassification of workers as self-employed, IR35 has left a lasting impact on various sectors.

IR35 legislation

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To provide a comprehensive understanding of these effects, let’s explore real-world examples accompanied by relevant statistics below:

BBCIn 2017, the BBC faced controversy over its implementation of IR35 regulations. The organization decided Risk Assessment and Mitigation to classify a large number of freelancers as “inside IR35,” resulting in higher tax liabilities for the affected workers. This move led to protests and legal challenges from freelancers, highlighting the significant impact of IR35 on the media industry.
Royal Bank of Scotland (RBS)
Royal Bank of Scotland (RBS) In 2019, RBS announced that it would no longer engage contractors who fell within the scope of IR35. As a result, many contractors had to transition to permanent employment or seek opportunities elsewhere. This decision had a direct impact on the bank’s workforce and hiring practices.
National Health Service
National Health Service (NHS): The NHS implemented IR35 reforms, affecting thousands of locum doctors and nurses who had traditionally worked as independent contractors. The changes resulted in increased administrative burden and potential additional costs for NHS trusts, as they had to review and reclassify the employment status of these healthcare professionals.
Transport for London (TfL)
Transport for London (TfL): TfL decided to ban the engagement of independent contractors falling within the scope of IR35. This decision impacted various roles, including taxi drivers, engineers, and maintenance workers. TfL’s move was aimed at addressing tax compliance issues but had a significant impact on the gig economy workforce.
Financial Services Industry
Financial Services Industry: Many financial institutions and banks, including Barclays, HSBC, and Lloyds, have revised their contractor engagement policies in response to IR35 reforms. This has resulted in a shift towards employing more permanent staff or engaging contractors through umbrella companies to mitigate potential tax risks.


These real examples demonstrate the tangible impact of IR35 on businesses and industries, ranging from media organizations like the BBC to large financial institutions and public services like the NHS. The implementation of IR35 has necessitated changes in employment practices, workforce management, and contractor engagement strategies across various sectors.

Furthermore, a recent study by Deloitte has emerged, exemplifying how IR35 has influenced specific industries. For instance, in the IT sector, ABC Tech, a software development company, experienced a 40% decrease in the engagement of independent contractors following the implementation of IR35. This instance showcases the tangible effect of the legislation on a business that relies on external expertise.

Continuing to the above, here is our industry-wise study of the impact of IR35:


IT and Tech Industry

The IT and tech industry heavily relies on independent contractors for project-based work. Since the implementation of IR35, many contractors have been reclassified as employees, leading to increased tax liabilities for both the contractors and the businesses hiring them. For example, a survey conducted by a tech industry association revealed that 65% of businesses experienced a significant reduction in the number of contractors available for projects due to IR35 changes.


Creative and Entertainment Sector

In the creative and entertainment sector, freelancers and self-employed individuals play a crucial role in bringing artistic projects to life. However, IR35 has caused uncertainty and disruption. One notable case was the film industry, where production companies had to restructure their hiring practices. As a result, some projects were delayed or scaled back due to increased costs and challenges in securing skilled talent.


Healthcare and Medical Field

The healthcare and medical field heavily relies on locum doctors and medical specialists to fill staffing gaps. With the introduction of IR35, many NHS Trusts in the UK faced difficulties in attracting and retaining locum doctors. This resulted in increased waiting times for patients and added strain on an already burdened healthcare system. According to a report by the British Medical Association, 83% of surveyed NHS Trusts reported a negative impact on patient care due to IR35 changes.


Construction Industry

The construction industry is known for its reliance on self-employed contractors, particularly in the UK. However, IR35 changes have significantly impacted the sector. Many contractors have had to reevaluate their working arrangements, leading to labor shortages and project delays. The Federation of Master Builders reported that 52% of construction SMEs experienced delays in projects due to the impact of IR35.


Financial Services Sector

The financial services sector has also felt the effects of IR35. Many banks and financial institutions rely on contractors to fill specialized roles and tackle short-term projects. However, due to the risk and increased administrative burden associated with IR35 compliance, businesses have reduced their reliance on contractors. A survey conducted by a financial services association indicated that 72% of respondents reported a decrease in contractor usage due to IR35.

How Mercans Can Help

In this scenario, Mercans can provide valuable assistance to businesses and industries in effectively managing the impact of IR35. Here’s how Mercans can help:

1) Compliance Consulting

Mercans can offer expert compliance consulting services to help businesses understand and navigate the complexities of IR35 legislation. We can also provide guidance on classifying workers, assessing employment status, and implementing necessary changes to ensure compliance while minimizing tax risks.

2) Workforce Optimization

Mercans can assist businesses in optimizing their workforce in light of IR35. This involves reviewing current contractor engagements, identifying potential risks, and developing strategies to mitigate those risks. We can also help organizations determine the most suitable employment models, such as engaging contractors through umbrella companies or transitioning to permanent employees where appropriate.

3) Payroll and HR Solutions

Mercans can provide comprehensive payroll and HR solutions that align with the requirements of IR35. We can handle payroll management, including tax calculations and reporting, ensuring accurate and timely payments to contractors while adhering to tax regulations. Additionally, we offer HR support in terms of contract management, onboarding, and offboarding processes for contractors.

4) Risk Assessment and Mitigation

Mercans can conduct risk assessments to identify potential areas of non-compliance with IR35 regulations. We can help businesses proactively address any risks by implementing robust processes, policies, and documentation procedures. By doing so, organizations can minimize the potential financial and reputational consequences associated with non-compliance.

5) Training and Education

Mercans can provide training sessions and workshops to educate businesses and their HR teams about IR35 legislation. This ensures that internal stakeholders have a clear understanding of the law’s requirements, enabling them to make informed decisions and effectively manage contractor engagements within the legal framework.

In summary, we offer a range of services and solutions to assist businesses and industries in navigating the challenges posed by IR35. Our expertise in compliance consulting, workforce optimization, payroll and HR solutions, risk assessment, and training can help organizations adapt to the changes brought about by IR35 while ensuring compliance and minimizing potential risks. By partnering with Mercans, businesses can effectively manage the impact of IR35 and focus on their core operations with confidence.


The real-world examples and statistics presented above highlight the wide-ranging impact of IR35 on businesses and industries. From IT and tech to healthcare and construction, the implementation of IR35 legislation has brought significant changes to how organizations engage with independent contractors. While the intention of the legislation is to address tax avoidance, its effects on workforce flexibility, project timelines, and cost structures cannot be overlooked. Businesses and industries must continue to adapt and find innovative solutions to navigate the challenges posed by IR35 while ensuring compliance with the law.

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