A growing number of freelancers and contractors are rejecting work because they are being left with no choice but to operate as an employee for tax purposes, according to new research. The research is based on a survey of 505 contractors by IPSE, the self-employed trade body and Qdos, a contractor insurance provider.
The survey found that 63 per cent had rejected an offer of work in the past 12 months solely because it was deemed inside IR35 by their client. This is up on last year, when 52 per cent of contractors reported rejecting work that was deemed inside IR35 – a scenario that sees contractors taxed as employees without any of the associated securities and protections.
The decision about whether freelancers in the private sector should be considered employed for tax purposes (“inside IR35”) or self-employed for tax purposes (“outside IR35”) sits with the worker’s client, due to controversial changes to the rules in 2021. The outcome of these decisions impacts contractors’ take-home pay.
For example, if a contractor’s client deems their role inside IR35 – where they are often then left with no choice but to operate via an umbrella company – their take home pay can reduce by anywhere up to 30 per cent. This is largely due to the fact that contractors working via umbrella companies also have to fund the Employers National Insurance due from their would-be employer.
Despite having been in force since 2021 in the private sector and 2017 in the public sector, the findings suggest that the off-payroll working rules are continuing to cause significant friction in the UK contract market, slowing hiring processes and making it harder for businesses to secure specialist talent.
However, the results also point to a challenging market for contractors themselves. One in four contractors (25 per cent) surveyed said they were currently out of work, while nearly two thirds (63 per cent) said they felt less confident about securing outside IR35 engagements over the coming year.
IPSE’s Managing Director, Vicks Rodwell, said the figures show that the off-payroll working rules are undermining the flexibility and speed that underpin the UK’s contractor market.
“If you’re a business, the appeal of working with contractors should be that you get quick and flexible access to specialist talent,” explained Rodwell, “But that’s being undermined by the IR35 rules. They create unnecessary barriers on both sides of the hiring process.
“Businesses are struggling to fill contract roles because highly skilled contractors are walking away from opportunities that they believe are being wrongly assessed as inside IR35. It’s tough enough out there for people looking for work without making flexible hiring harder than it needs to be.”
The report also found ongoing problems with how the rules are being implemented in practice. Despite legal requirements for hirers to provide contractors with confirmation of their IR35 status – called a Status Determination Statement (SDS) – 65 per cent of contractors said they had not received one from their client. This was worse than in 2025, when 57 per cent reported not receiving an SDS.
Seb Maley, Qdos Chief Executive, said: “There’s still so much work to be done to ensure genuinely self-employed freelancers and contractors are given the opportunity to work in this way – by this, I mean outside of IR35.
“Given the financial implications of working inside IR35 or on the payroll, it’s no surprise that contractors often say no – and the fact that individuals are rejecting work in this uncertain climate tells you everything you need to know.
Maley added: “This is only going to backfire on businesses, which lose out on highly-skilled, flexible talent, while also absorbing employers’ NI costs, often needlessly.”
