He found ____ difficult to improve his English……?

我认为单看这个句子it和it's应该都可以,He found it difficult to improve his English句中it是形式宾语,而真正的宾语为动词不定式to improve his English
而He found it's difficult to improve his English句中 it's difficult to improve his English是find后面的一个宾语从句,句中it为形式主语.

因为【it是形式宾语，真正的宾语是后面的不定式】。这是做find的宾语的。
如果要改成it‘s，那么要加上宾语从句引导词that，改成：
He found 【that it is】 difficult to improve his English……

it 在这里指代的就是“to improve his english"，所以是found it difficult.
如果是he found (that) it is 就完全变成了另外的意思，强调的是difficult了。
而这里to improve his english是重点。