Self-employment loopholes crackdown: consultation open to 8 January

The government has opened a consultation on bogus self-employment, aimed at firms that mislabel staff as self-employed to avoid their legal obligations. GOV.UK said the plans could help more than 900,000 people access protections such as the National Minimum Wage and holiday pay. Nothing changes yet, but anyone who works for themselves or hires contractors can now have a say.

What is changing, and why it is not an HMRC self-employment tax change

The proposals form part of the government’s Plan to Make Work Pay. GOV.UK defines bogus self-employment as a practice in which some businesses label staff as self-employed to avoid statutory obligations, even though in day-to-day reality those people are treated as workers.

The consultation launched on 14 October, will run for 12 weeks and closes on 8 January. Businesses, workers, trade unions and self-employed representative bodies can respond through gov.uk. Ministers say they are particularly keen to hear how the practice can be stopped while protecting the rights of the genuinely self-employed.

It is worth being clear about what this is not. The government’s notes to editors say the consultation looks at employment status for employment rights and “does not have any proposals related to tax status or tax frameworks”. So despite the talk of loopholes, it is not an HMRC self-employment tax change, and it does not alter how sole traders are taxed.

For people who are genuinely self-employed, the consultation proposes a right to a written statement about the individual contracts they enter, and extended protections against blacklisting. Because it is a consultation, any rule changes would need further steps before they take effect.

Who is affected by the crackdown

GOV.UK named parcel couriers, delivery drivers, hairdressers and gig economy workers as examples of people who could benefit. It cited external estimates, from a report called Low Pay Britain 2025, that as many as 900,000 people may currently be affected and could be missing out on core employment rights.

A different figure came from Business Secretary Jonathan Reynolds’s speech to Labour’s 2024 conference. According to Contractor UK, he said up to 100,000 more workers would get access to the minimum wage and holiday pay. The sources do not explain the gap between the two numbers, so readers should treat both as estimates rather than settled counts.

For businesses, GOV.UK said the proposals could give greater clarity and level the playing field for firms that already follow the rules. Companies that hire contractors should watch the consultation closely, because it is their working arrangements that would be tested.

What supporters and critics say

Mr Reynolds said: “When loopholes are exploited, people are denied their basic employment rights and businesses doing the right thing are undercut.” He added that the aim is fairness for businesses and working people while “continuing to back the flexibility and independence that genuine self-employment offers”.

Citizens Advice has pressed for faster action. Its director of policy, Tom MacInnes, said the government’s review of employment rights “must bring a swift change in laws, closing the bogus self-employment loophole”. The charity said 5.6 million workers in Britain are in insecure work, though that figure covers temporary and zero-hours contracts and low pay.

Philip Ross, a Labour Business vice-chair who writes for Contractor UK, expects the government to pursue what he calls “presumptive determination”. Under that model, the client would have to show a worker is genuinely self-employed, rather than the worker having to prove they deserve rights. Mr Ross called it a “fairer starting point”, but this is his reading of the speech, not a proposal GOV.UK has confirmed.

The sources contain no response from business groups or from the genuinely self-employed who might face new obligations. The detail of how a test of status would work is likely to be the main point of debate during the consultation.

What to do now

If you work for a business that calls you self-employed, start by reading the full consultation, titled Make Work Pay: employment status reform and protections for the self-employed, on GOV.UK. Compare it with how your work actually runs day to day, since GOV.UK stresses that real treatment is what the proposals focus on. You have until 8 January to respond.

If you hire contractors, check whether your written contracts match reality, because a right to a written statement is among the ideas on the table. Keep records of how each person works for you. The next date to note is the Autumn Budget on 28 October, which Contractor UK says Chancellor John Healey is expected to deliver, though that outlet expects the emphasis to fall on workers’ rights rather than tax.

Your questions answered

How does the new tax work for self-employed people?

There is no new tax in this consultation. The government says it contains no proposals on tax status or tax frameworks, and sole traders are not being taxed differently under these plans.

What are the disadvantages of being a sole trader?

The sources do not set out a full list. They do show that genuinely self-employed people currently lack a right to a written statement of their contracts, and that the government wants to extend protection against blacklisting.

How do I notify HMRC that I am no longer self-employed?

The sources for this story do not cover HMRC’s process, so we have not set one out. HMRC’s own guidance on GOV.UK is the place to check, and this consultation does not change tax registration rules.