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IR35 tax take is a tiny proportion of that hoped for

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26th May 2009
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The Professional Contractors Group (PCG), the association that represents freelancers and contractors in the UK, has acquired details of the total tax take from IR35 (the intermediaries legislation) through a Freedom of Information (FOI) request.

The response to the request to HMRC under the Freedom of Information Act, asking how much tax revenue IR35 raises for the Exchequer revealed that between tax years 2002/03 and 2007/08, IR35 directly raised only £9.2 million. This equates to an average of around only £1.5 million per tax year – a tiny sum in Government 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. The PCG claims that this statistic demonstrates that IR35 has not lived up to the Government’s expectations.

“This revelation confirms our long-held suspicions about IR35,” commented PCG’s Managing Director, John Brazier. “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.”

Added Mr. Brazier: “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.”

However, advisers will probably point to additional revenue raised through conventional PAYE and NIC on salaries drawn by those who believe that they might be affected by IR35 as likely to increase the tax take considerably. Even then, it is likely that the measure yields a disappointing sum for the Government’s rather empty coffers, and these statistics will only further add to the doubt over whether the measure should survive.

Rebecca Benneyworth, Editor of AccountingWEB.co.uk has considered the alternatives and the issues involved in “IR35 – time to go?”, "Possible solutions to the IR35 problem" and “So how much is fair”.

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