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| CURRENT SECTION :: IR35 / IR591 |
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Exactly how much revenue the taxman’s enforcement of IR35 earns the government can be officially revealed for the first time. Figures from HM Revenue and Customs confirm what freelancers have suspected since the tax rule came in a decade ago: enforcing IR35 returns only a pittance. In fact, the department’s IR35 compliance team added just £9.2m to Treasury coffers between the tax years of 2002/03 and 2007/08; the equivalent of a mere £1.5m a year. Not only is this sum just a drop in the tax ocean, but it is also well short of the £220m that officials predicted IR35 would earn per year via National Insurance contributions alone. Roger Sinclair of Egos, an IT contract adviser, said: “IR35, introduced by the prime minister Gordon Brown in his days as chancellor, interferes with enterprise - and these figures expose it as a 'loser'. “The then chancellor badly misjudged not only the effect on business of this deeply-resented tax, but also seems to have misjudged, by a factor of more than 100 times, the revenues to be generated.” The Professional Contractors Group, which obtained the figures, said: “IR35 makes very little money for the government and… it may even cost more to implement than it actually brings in.” The freelance trade group will make further use of Freedom of Information rules, which it cited to force HMRC to release the figures, to find out “the true costs of IR35.” This current disclosure does not include the state’s income from the deterrent effect of IR35, nor does it factor in its earnings from voluntary compliance by umbrella companies. A PCG spokesman also clarified that the group asked HMRC to provide data only on actual ‘revenues raised as a result of compliance activity specifically categorised as IR35.’ Yet IR35 advisers at Bauer & Cottrell reflected: “The key issue is not about what has been raised from compliance work, but what HMRC has raised as a result of IR35 [overall]. “IR35 was used as the basis to outlaw managed service companies and this resulted in thousands of contractors switching to umbrellas, levying PAYE and NICs on all engagements. “[In addition] the Revenue’s success in the courts has no doubt made many contractors accept they are inside IR35 and brought further full PAYE and NICs.” The firm said HMRC would use its beefed-up powers, alongside new questions on self-assessment forms, to increase the “take” of its IR35 compliance arm, potentially to £3m a year. The warning will alarm freelancers, who say IR35 forces them to prove “unworkable” tests of their self-employed status, and to pay more tax than salaried, permanent employees. Partly as a result, there have been “numerous, distressing, costly and time-consuming” investigations by HMRC into compliant, legitimate freelancers, said John Brazier, PCG managing director. Records provided by the group show that of the 1,468 IR35 investigations its experts have been involved with, HMRC proved additional tax was owed only six times. “This demonstrates how IR35 is unfair and unworkable,” said the PCG spokesman, explaining it also raised a “pitiful” amount of revenue and deserved to be scrapped. The official figures, showing IR35 annually rakes in just £1.5bn, will be presented to the three main political parties to prove “abolishing IR35 will not affect the public purse adversely.” The PCG added: “If we can demonstrate that IR35 may not only cost more to enforce than it meaningfully raises in revenue, but also that it has essentially been unenforceable and a failure, then it would add to our lobbying arsenal significantly.” May 22, 2009 Email this article Printer friendly page Previous Page
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