IR35 rules under scrutiny

The Professional Contractors Group (PCG), the association that represents freelancers and contractors in the UK, has revealed the exact amount the restrictive IR35 tax regulation rakes in for the government.

Following a request under the Freedom of Information Act to HMRC, asking just how much tax revenue IR35 raises for the exchequer, PCG can divulge that between tax years 2002/03 and 2007/08, IR35 directly raised just £9.2 million. This equates to an average of around only £1.5 million per tax year – a tiny sum in governmental terms. The initial regulatory impact assessment for IR35 in 1999 stated that HMRC expected the measure to generate £220 million per year in National Insurance contributions alone, thus demonstrating IR35 has not lived up to the government’s expectations.

“This revelation confirms our long-held suspicions about IR35,” commented PCG’s Managing Director, John Brazier. “IR35 makes very little money for the government, and given the cost of enforcing it, and the number of failed investigations for HMRC, it may even cost more to implement than it actually brings in. This is a ludicrous state of affairs. IR35 restricts the flexibility of the labour market and is difficult to enforce. It should be abolished at the earliest opportunity.”

IR35, originally established to combat false self-employment, has long been derided by freelancers, as it forces such workers to prove unworkable tests of their employment status, and to pay more tax than a salaried, permanent employee. This has led to numerous distressing, costly and time consuming HMRC investigations into legitimate freelancers. Indeed, of the 1,468 IR35 investigations PCG has been involved with, HMRC proved additional tax was owed just six times.

Mr Brazier added “We intend to follow this information up with further Freedom of Information Act requests, as we believe there is more to be uncovered from HMRC. In doing so we will find out the true costs of IR35, and expose the wildly inaccurate premise on which it is based. PCG now has an even stronger case to make for IR35’s abolition, which politicians of all parties cannot fail to ignore.”

Article Added Friday, 29 May 2009

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