​There’s a common misconception that if HMRC disagrees with an employer’s “Outside IR35” determination, it’ll result in a huge retrospective tax bill for the employer, this has led to fear around engaging contractors Outside IR35, even where appropriate, simply because the risk of getting it wrong was too financially severe.

That used to be true. But the IR35 Offset Reform, introduced in 2024, changed the rules. However, almost 2 years on there is still reticence. Below is a quick recap of the 2024 changes.

Elimination of Double Taxation

Before the reform, if HMRC decided a contractor should have been “Inside IR35”, they would send the full tax bill to the employer, as if no tax had been paid at all. But in reality, the contractor had already paid tax through their own business, this meant HMRC was collecting tax twice on the same income; once from the contractor, and again from the employer.

The Offset Reform fixed this by ensuring HMRC deduct any tax already paid by the contractor, meaning employers only pay the difference. It is a much fairer system.

Reduced Financial Risk for Employers

Under the previous rules, if HMRC later reclassified an engagement as Inside IR35, employers could be liable for the full PAYE and NICs due, plus interest and penalties,

Since the Reform, when calculating what’s owed, with HMRC having to deduct any taxes already paid by the contractor, the employer’s financial exposure is significantly reduced, making Outside IR35 hiring much more commercially viable and fairer.

More Accurate IR35 Decisions Encouraged

Prior to April 2024, many organisations defaulted to a cautious, blanket “Inside IR35” approach. Not because it was the right determination, but because the financial risk of getting it wrong was too high.

That risk was significantly reduced, with employers no longer on the hook for the full tax bill, they’re now in a better position to make fair, case-by-case IR35 assessments based on working practices and contractual reality, rather than fear of financial exposure.

Use of Skilled Contractors Supported

Some projects struggled to access the right talent at the right time as the financial and compliance risks associated with Outside IR35 determinations led many employers to play it safe, even when contracting would have been the most efficient and cost-effective solution.

By reducing the tax exposure for employers, the Offset Fix made Outside IR35 engagements far more viable again. Project teams can move faster without being tied up in risk-averse policies, specialist contractors are more accessible and are bringing in-demand skills where they’re most needed, and employers can build flexible workforces without carrying disproportionate risk.

We are coming up to the two year anniversary of the Reform, but it’s still widely misunderstood; for industries like infrastructure and engineering, understanding this reform is key to unlocking the full potential of the contract workforce.