IR35 brings Government just £1.5m a year
The Government has received just £1.5 million a year from IR35, according to figures received under the Freedom of Information Act.
Freelancer trade association, the Professional Contractors Group (PCG), used the FOI to ask how much tax revenue IR35 raises for the Exchequer. It revealed that between tax years 2002/03 and 2007/08, IR35 directly raised just £9.2 million. This equates to an average of around only £1.5 million per tax year – a tiny sum in Government tax terms and a fraction of what the Government expected.
The initial Regulatory Impact Assessment for IR35 in 1999 stated that HMRC expected the measure to generate £220 million per year in National Insurance contributions alone.
At the time, Kevin Miller, a respected accountant and expert on IR35, queried these figures and predicted a more likely outcome of a tax loss to the Exchequer of £36 million.
In the intervening 10 years since the introduction of IR35, the Government has repeatedly refused to supply information relating to the tax take on IR35, saying that there was no data relating solely to this legislation.
PCG's Managing Director, John Brazier, said: "This revelation confirms our long-held suspicions about IR35. IR35 makes very little money for the Government, and given the cost of enforcing it, and the number of failed investigations for HMRC, it may even cost more to implement than it actually brings in. This is a ludicrous state of affairs. IR35 restricts the flexibility of the labour market and is difficult to enforce. It should be abolished at the earliest opportunity.
"We intend to follow this information up with further Freedom of Information Act requests, as we believe there is more to be uncovered from HMRC. In doing so we will find out the true costs of IR35, and expose the wildly inaccurate premise on which it is based. PCG now has an even stronger case to make for IR35's abolition, which politicians of all parties cannot fail to ignore."
Success
IR35, originally established to combat a scenario whereby a worker leaves a job on a Friday and returns as a contractor on a Monday, has long been derided by freelancers.
It has been criticised not only for its unfairness but for the confusion it introduces and the unworkable tests to determine employment status.
HMRC has been actively pursuing IR35 cases in the Commissioners, although they have met with little overall success, as these figures suggest.
Many freelancers have insured against IR35 investigations with policies such as UKTECH's Freelancers Outside IR35 (FO35), and with the assistance of professional representation during investigations the vast majority of cases have been found in the freelancers' favour.