IR35 experts take Treasury’s £740m delay figure with a pinch of salt
Advisers on IR35 say the government’s forecasts showing that the delay to the new off-payroll rules forfeits £740million for the exchequer should be taken with a pinch of salt.
Even Qdos, which still maintains that the forfeit might explain the absence of covid-19 support for the contractor sector, says the Treasury's forecasts are no more than “estimations”.
Boss Seb Maley believes that officialdom’s track record on IR35 projections is a good basis to make the terminology downgrade.
“As we all know, the government believes that IR35 non-compliance is widespread.
“[It reckons] as many as nine in 10 contractors who ought to be working inside IR35 are currently operating outside the scope of the legislation.
“But in our experience," he said, "most contractors carry out their due diligence and ensure they are working compliantly with regards to IR35.”
'Not a concrete basis'
Another status advisory Bauer & Cottrell says it struggles to believe that the freshly revised forecasts of what IR35 reform will raise are “based on anything concrete.”
Co-founder Kate Cottrell said: “Not least because HMRC have claimed for many years that they did not actually know the size of the IR35-affected population.
“And I recall that HMRC had a very embarrassing time at the House of Lords, when they tried to defend their figures the last time.”
ReLegal Consulting is more accepting of Spending Review page 13 (45), saying that the £740m hit incurred from shelving the framework is “maybe an anticipation of a reduced number of PSCs.”
But owner Rebecca Seeley Harris believes that while limited company workers changing structure ahead of the rules may inform the predicted revenue dip, little else probably does.
“When I was at the Office of Tax Simplification, we used to get our details from HMRC’s Knowledge, Analysis and Intelligence directorate.
“But KAI uses some very dubious proxies to make these assumptions,” she says. “Sometimes they might as well just stick their finger in the air.”
A former tax inspector implied the usage of proxies was to ‘over-sophisticate’ what Treasury forecasters likely used to produce the four-year projections.
“Let’s be honest, all these [figures] are pure and simple guesswork,” the ex-official said. “Really meaningless. But I suppose providing them keeps someone in a job.”
Yet the mere suggestion that March's off-payroll rule deferral will deprive the government of any money is all but confirmation that IR35 reform will go ahead in five months' time.
'Easy to assume'
Peter Whipday, IR35 business lead at recruiters Orion Electrotech explained his assessment:
“With HM Treasury looking to recoup the costs of various covid-19 support schemes and other key spending this year, when faced with projected costs of further delaying the IR35 reforms, it is easy to assume we won't likely see any deferment again, in April.”
But because of the pandemic, a lot could happen between now and April – the last six months alone has proved that, says Ms Cottrell, suggesting the variables are just too big to quantify.
“HMRC’s statistics show that tax collected for April to October 2020 are £70.6billion lower than the same period in 2019,” the IR35 adviser says.
“It will be interesting to know if account was taken of such a dramatic fall when the four-year projected revenue loss of £740m was calculated.”
'Definitely a link'
Last night, a tax lawyer speaking on condition of anonymity said the background information to the Treasury’s figures would likely be “interesting, but probably not readily volunteered.”
The lawyer added: “Nonetheless, I definitely think there is a link between the IR35 revenue deferral stats and the lack of help for limited company directors.”