IR35 Generates More Money Through Deterrence Than Through Enquiries, Experts Suggest

The PCG has obtained further data from HMRC under the Freedom of Information Act, which reveals a ten-fold increase in the tax yield per individual IR35 enquiry.

On average, individual IR35 cases brought the Revenue just £1,700 each in the first six years of the legislation’s existence. However, between 2006 and 2011, the yield per case soared to £17,000. During the same period, the number of cases fell substantially, plummeting from 3,886 between 2000 and 2006 to just 322 between 2006 and 2011. The smaller number generated a similar tax take - £5.4 million pounds, as opposed to the £6.7 million brought in over the earlier period.

While this suggests improved targeting by HMRC, several IR35 experts are less than impressed. Chartered accountant Paul Spindler said that the yield remained “shockingly low,” generating a paltry £3,500 per enquiry as an overall average. He also thinks that the miniscule data so far revealed by HMRC doesn’t come close to giving a full picture of IR35; his speculation is that many of the Revenue’s enquiries have generated “no [tax] recovery whatsoever.”

Moreover, the information gives no indication of how many taxpayers – such as those working through umbrella companies - have chosen PAYE directly because of IR35.

His views were shared by two other IR35 experts – Kate Cottrell of Bauer & Cottrell and Seb Maley of Qdos. Both believe that the emphasis placed on the legislations’ ineffectiveness by many of its critics overlooks a more insidious phenomenon: its deterrent effect. The latter, they believe, may be far more lucrative from a Treasury point of view than IR35einquiries themselves.


Source:
http://www.contractoruk.com/news/00revenues_ir35_case_yield_100.html