The Professional Contractors Group has discovered that IR35 tax regulation has raised a mere £9.2m for the Government since it was introduced in 2002.
Following a request under the Freedom of Information Act to HMRC, asking just how much tax revenue IR35 raises for the exchequer, PCG was told 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 very small sum in Governmental terms. 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, thus demonstrating IR35 has not lived up to the Government's expectations.
The PGC calculates that 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 and calls for its abolition at the earliest opportunity.
IR35, originally established to combat false self-employment, has long been disliked by freelancers, as it forces such workers to prove unworkable tests of their employment status, and to pay more tax than a salaried, permanent employee. This has led to numerous costly and time consuming HMRC investigations into legitimate freelancers. The PGC says that of the 1,468 IR35 investigations it has been involved with, HMRC proved additional tax was owed just six times.
JSA Managing Director Rick Flood comments: "HMRC is likely to defend these figures on the grounds that the introduction of IR35 has achieved an objective of driving workers, who would otherwise have been caught by IR35, back towards payrolled employment, whether directly or via Umbrella companies - and this tax-take would not show up in statistics directly related to IR35. Whilst there may be some truth in this, there is little doubt about the administrative burden and structural costs the PCG refers to and the uncertainty that the legislation has created amongst the flexible workforce and those businesses who draw upon it as a key economic resource."
Flood concludes: "Nonetheless in spite of expectations in some quarters that IR35 might have a limited shelf-life, JSA's understanding of current
policy towards IR35 is that it is not going to go away, although refinement is a possibility."
Courtesy of JSA Group.
