Contractor group attacks ‘worthless’ IR35

A freedom of information release showing that IR35 generates only a small amount of revenue is cause to more clearly explain why the rule was kept in place, the government was told yesterday.

In the Budget in March, and following the OTS review of IR35, the coalition chose to retain the much-disliked legislation because, it claimed,  “abolition would put substantial revenue at risk.” 

But having received figures from HM Revenue & Customs for the last five tax years, the PCG said IR35’s yield is “minimal,” so much so that the Labour-conceived rule is actually ‘worthless.’

George Osborne, the chancellor, therefore has “a great opportunity in the November statement to release businesses from this ridiculous burden and free up HMRC resource to work on better things.”

More directly, IR35 should be scrapped – “what PCG has always believed,” the group added, in line with a policy paper on IR35 by the Liberal Democrats, whose party conference was held this week.

More immediately, the government’s “decision-makers” must explain to the public, particularly freelancers, why the risk to the Exchequer makes scrapping IR35, or suspending it, a non-starter.

“I'm amazed, appalled and angry that so many people in the private and public sectors are wasting their valuable time on IR35 if this is all it takes in,” said PCG chair Chris Bryce, pointing to HMRC’s figures.

They show that IR35 generated £1.9m between 2006 and 2007, £1.7m in 2007-08, and £1.4m in 2008-09. In the 12 months to April last year, IR35’s yield plummeted to £155,502. For the current tax year, it has returned less than £220,000.

“Despite the now evident worthlessness of IR35 it remains in place and, as directed in the Budget this year, its administration is being reviewed,” said PCG managing director John Brazier.

“The IR35 Forum [is working] to reduce the impact of IR35 but this new data reiterates what PCG has always believed, IR35 should be scrapped.” 

Underlining its “call for action,” the group said that there have been only 332 cases in the past five years - since 2006 - where IR35 was “identified as a risk”.

HMRC figures showing the number of IR35 investigations opened were presented as follows:

• 6 April 2006 to 5 April 2007 - 158
• 6 April 2007 to 5 April 2008 - 104
• 6 April 2008 to 5 April 2009 - 025
• 6 April 2009 to 5 April 2010 - 012
• 6 April 2010 to 5 April 2011 -  023

“These figures confirm what PCG has always said, that the tax yield from IR35 is minimal and that the stress and damage done to the UK’s 1.4 million genuine freelance businesses is completely unnecessary,” Mr Brazier said. “[They] also show us that IR35 is an unwarranted measure”.