The government’s long-awaited employment status consultation has finally been published, with some welcome ideas, some cause for caution and some missed opportunities. “Make Work Pay: employment status reform and protections for the self-employed”, published on 14th October 2026, is about employment rights. Who counts as a worker, who gets holiday pay and the minimum wage, and how to stop businesses falsely labelling people as self-employed. But one group of contractors with a strong claim to fairer treatment, those inside IR35 through their own companies, is nowhere to be found.
So what is actually being proposed, and what does it mean for you?
What is the employment status consultation proposing?
For employment rights purposes (not tax), the law currently recognises three categories: employees, who get the full set of rights; “limb (b) workers”, a middle category entitled to core protections like the minimum wage, paid holiday and a workplace pension; and the genuinely self-employed, who get very little but keep their independence. The consultation is about where the line sits between workers and the self-employed, and what happens where people fall the wrong side of it.
The main proposals are:
- Less weight on personal service, and more on control. Under the current rights test, a genuine right to send a substitute generally means you cannot be a worker, however much the client controls your work. Clauses that do not reflect reality can already be disregarded, because the courts look at what actually happens rather than what the paperwork says, and the consultation acknowledges this. The proposed fix goes further: even a valid substitution clause that is rarely or never used can currently outweigh everything else, and the government sees substitution clauses being used to avoid giving basic protections. Its answer is to give a right of substitution less weight on its own: it would no longer be decisive in ruling someone out as a worker if they are under significant control by the engager, and the wider picture would then also need to be considered, including whether the individual is genuinely in business on their own account.
- A presumption of worker status. At tribunal, the burden of proof would flip. Instead of the individual having to prove they are a worker, the engager would have to prove they are not. The government’s aim is to make it harder to get away with “bogus self-employment”.
- Penalties for repeat offenders. Where a tribunal has already found that people working under broadly similar arrangements are workers, an engager who keeps denying it to others could face an additional penalty of up to £20,000 per claim.
- A bigger enforcement role for the Fair Work Agency, including the possibility of bringing tribunal cases on behalf of individuals, plus a CEST-style online tool for assessing rights status.
- New protections for the genuinely self-employed. These include the right to a written statement setting out the key terms of each engagement (what the work is, what you will be paid and when, and how the contract can be ended), together with possible extensions of blacklisting and health and safety protections.
Importantly, the consultation is explicit that it concerns rights, not tax status. Nothing proposed in it changes IR35, the Off-Payroll Working rules, or technically how status for tax purposes is decided (see more later).
What does the employment status consultation mean for contractors generally?
If you are genuinely in business on your own account, the direct impact should be limited, and parts of it are positive.
The written statement proposal is sensible. Most professional contractors already work under written contracts that cover scope, rate and termination, and the consultation confirms that a proper written contract would satisfy the requirement. For those working on handshakes and hope, a right to key terms in writing is a genuine improvement, and it supports the wider push against late payment.
The substitution proposals are one of the most significant parts of the consultation, and the part contractors should watch most closely. The proposals cover the rights test – IR35 status turns on whether the contractor would be an employee under the common law test, which these proposals do not cover, and personal service remains a core part of that test. But we think it is unlikely the change will stay neatly in its own box. Tax and employment cases draw on the same body of case law, and if Parliament legislates that a right of substitution should not outweigh significant control for rights purposes, we would expect HMRC to run the same argument in IR35 cases.
Our long-held view still applies: a right of substitution only ever carries weight where it is realistic and exercisable, and it has never been a golden ticket on its own. If your outside IR35 position leans heavily on a substitution clause that has never been used and never realistically could be, this is a good reason to look at the whole picture now, including control, financial risk and how you operate as a business.
The presumption of worker status needs safeguards. Reversing the burden of proof will catch some genuinely exploitative arrangements, and we support that aim. It must not become a route for speculative claims against clients and agencies engaging genuine businesses, because the predictable response from risk-averse organisations would be fewer opportunities for contractors, and the industry is still feeling the repercussions of the Off-Payroll reforms.
Rights status, not tax status – inside IR35 contractors not covered by the proposals
Since the Off-Payroll Working rules arrived (2017 in the public sector, and 2021 for medium and large private sector clients under Chapter 10 ITEPA 2003), many limited company contractors have been determined as inside IR35 by their clients. The fee-payer then deducts income tax and employee National Insurance and accounts for employer National Insurance on top, so the contractor is taxed as if they were an employee of the client.
But that deemed employment exists only for tax. It gives the contractor no employment rights against the client or the fee-payer, no statutory holiday pay, sick pay, pension contributions or protection from unfair dismissal. HMRC’s position is that any entitlement to statutory payments comes through the contractor’s employment with their own limited company, which in practice means they are funding it themselves.
A consultation built on the principle that people should not be classified one way and treated another has left out one of the clearest examples of exactly that. The government had the opportunity, and arguably the tools within its own proposals to address it, and we will be making that case in our response.
Tax and employment rights status drifting further apart
Implementation of these measures as proposed would push the rights and tax frameworks further apart. Control would be pushed up the rights test while personal service remains central to the tax test. It is already possible to be a worker for rights and self-employed for tax, and these reforms could widen that group.
Many in the sector are calling for tax and employment rights status to be aligned, and we agree that one engagement should not produce two different answers. These proposals do not address the wider problem, and if reworked worker status tests filter through to IR35, they could raise the bar for genuine contractors to be outside IR35 without delivering any of the rights that should come with being treated as an employee.
Proper alignment needs a single, across-the-board framework designed for tax and rights together, including how the middle category of worker fits into a tax system that only recognises employees and the self-employed.
What happens next?
This is only a consultation at this stage. Once it closes, the government will review the responses and publish its own response setting out which proposals, if any, it intends to take forward. Changes to the worker definition or the burden of proof would then need legislation to pass through Parliament, often with further consultation on the detail, before a date is set for them to take effect. Realistically, any changes are likely to be some way off and could end up looking quite different from what is proposed today.
With that in mind, here is where things currently stand:
- The employment status consultation closes 8th January 2027.
- It covers employment rights only. IR35 and the Off-Payroll Working rules under Chapters 8 and 10 ITEPA 2003 are not covered.
- The main proposals are less weight on personal service and more on control in the worker test, a presumption of worker status at tribunal, penalties for repeat misclassification, and a right to a written statement for the self-employed.
- Contractors determined inside IR35 under Chapter 10 pay employee-style taxes but get no employment rights or protections from the client or fee-payer, and these proposals would not change that.
- We support aligning tax and employment rights status, but these proposals push the two further apart, and real alignment needs a single framework covering both.
Have your say
The employment status consultation closes on 8th January 2027, and anyone can respond, whether you contract through a limited company, work through an umbrella, or engage contractors. Responses can be submitted online or by email to statusconsultation@businessandtrade.gov.uk. The government has asked an open question about other ways to extend rights. If the rights and tax status gap matters to you, have your say.
Bauer & Cottrell will be responding to the consultation, and will publish our full response in due course.
