There are different scenarios. Picture this. I used to work for one of the big power companies, making sure they operated safely. We had a group of about 15 of us, limited by corporate head count. However, there was always too much work for the number of us, due to the head count which was a hard limit.
So the company went out and rehired some of the older generation that had been “retired” a few years earlier. These people had been part of a staff shedding exercise, and had retired at 55. As well as being given a tax-free lump sum redundancy payment they had all their final salary pension pots made up with contributions right up to their official retirement age of 60, and furthermore were allowed to draw their pensions immediately in full with no reduction for early take up. The only restriction was that they had to wait 2 years before being reemployed by their old employer, so they got other highly technical freelance work.
When they were allowed back as contractors after 2 years away, they moved back into our workplace and were paid at higher rates than the employees. Furthermore, they were not PAYE but had the money paid gross into “personal service” companies that they had set up for specifically this one job. They could pay themselves a nominal salary out of this PS company but took most of the cash out as dividends for which they paid minimal tax (16% max).
This was not a secret, in fact some boasted. You can imagine that the regular employees, working alongside and paying full whack PAYE tax and National Insurance were a little pissed off. These contractors were tolerated because they were experts and also nice chaps mostly who we respected. And even the trades unions went along with it. Most of us just said “well, they got lucky”. But it caused some staff friction.
It is this kind of thing that IR35 is meant to address. Oh and guess what... now that IR35 has come into play and the aged contractors will all have no other option but to be PAYE employees, they have all decided to jack it in and retire properly now, to spend more time polishing their new cars. Though the Covid has hampered their extended exotic foreign holiday time.