Simon Sweetman reacts to the news last week that the PCG now has information about the tax take from IR36. He adds his call to the growing voice of doubt over the usefulness of this legislation.
I think we all have to be grateful to the Professional Contractors’ Group for having used the Freedom of Information Act to wrench information about the workings of IR35 from HMRC. The information confirms what we have all suspected, that as a direct revenue raiser this legislation was and is a disaster. In six years from 2002/3 to 2007/8 it has raised £9.2 million.
Quite what it has provided by way of professional fees must be another matter altogether. Apart from the regular advice given to regular clients, there are firms out there that have built their entire fortunes on IR35. Perhaps it is ungrateful for the profession to complain!
It is possible to argue that the legislation will have sucked in large quantities of tax and NIC through its deterrent effect - possible to argue but impossible to prove or refute, let alone measure. My experience (for what it’s worth) is that many people have found that sticking their heads in the sand has been a workable strategy, since HMRC has found it difficult to police the vast new numbers of personal service companies in any substantial way. That has to be an indicator of poor legislation, because legislation that can only be enforced in a small fraction of cases is no good for anyone.
We appear to have a situation in which HMRC, even when it gets involved, hardly ever wins its arguments. The PCG says that it knows of 1,468 enquiries by HMRC (those presumably being the ones handled by their associates) and that of those only six have succeeded in raising more tax. I have also found that the larger clients (the big companies that use the services of the consultants) manage to be highly reluctant to cooperate with HMRC in establishing the facts. There have also been a fair number of cases going to tribunal or even on to the courts, producing far more heat than light as different indicia of employment became briefly fashionable.
The overall cost of this legislation must have been enormous, even before we add in its effect in souring relations between HMRC and the profession. If we cast our minds back it was originally a response to the substantial incorporation of one person consultancies, a trend that arose from the demands of the big company clients and the agencies but was then also used to gain a tax advantage.
It was one of the first Inland Revenue consultations I was involved in, and not one of the best. The legislation was already written before consultation started and the only changes were to the advantage of big business. I hope we have all learned something since then.
In the end I think we can echo Sly Stone when it comes to IR35: ‘What is it good for? Absolutely nothin’, say it again’ !