Taxman's IR35 enquiry yield drops by 61%

The taxman’s yearly yield from investigating contractors under IR35 has fallen steeply -- by £670,000 -- even though the number of enquiries under the rule has fallen only slightly.

In fact, new figures from HM Revenue & Customs show such a yield fell from £1.1m in 2012/13 to a paltry £430,000 in 2013/14. Enquiries are down too but less so, from 256 to 192.

The yield figures were released to Pamela Nash MP under the Freedom of Information (FoI) Act. They show that IR35 enquiries netted 61% less in the last tax year than in the previous one.  

Such revenue from IR35 “compliance interventions” is at its lowest level for three years, during which time reforms were put in place to try to make the rule more effective.

But 2010/11 was the last time IR35’s enquiry yield was lower, even though recommendations to ensure the rule has its “intended effect” have since been made by the House of Lords.    

The Lords were initially told IR35’s ‘exchequer risk’ was £475m. Then it was £550m. Now, the same figure (minus the £30m netted as a direct result of IR35) is being cited by a Treasury minister.        

David Gauke said: “In addition to the tax voluntarily paid through IR35, and the compliance revenue, the cost to the Exchequer of not having… IR35…would be around £520m a year.”

Also in his reply to the FoI request last week, the Treasury minister said that regional data such as that for Scotland (where Ms Nash is a Labour MP), was not “produced” by HMRC.

Meanwhile, the reasons why IR35’s enquiry yield is down by almost two-thirds, at a time when the number of enquiries has reduced by only a quarter, will be debated today at the IR35 Forum.  

The Forum may not isolate its discussions to the 2013/14 tax year (in which new guidance on IR35 was unveiled by HMRC), and so it may look at the previous years and enquiry yields, listed below:  

Tax Year No. of IR35 Enquiries Yield
2000 - 2001 16 nil
2001 - 2002 261 nil
2002 - 2003 1,016 £946, 275
2003 - 2004 1,166 £1.9m
2004 - 2005 771  £1.4m
2005 - 2006 656 £2.3m
2006 - 2007 158 £1.9m
2007 - 2008 104 £1.7m
2008 - 2009 25 £1.4m
2009 - 2010 12 £155,502
2010 - 2011 23 £220,000
2011 - 2012 59 £1.2m
2012 - 2013 256 £1.1m
2013 - 2014 192 £430,000
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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