A recent Freedom of Information request made by Bloomsbury Professional, the business publishers, has revealed that IR35 investigations more than doubled in the last tax year from 23 (2010/11) to 59 (2011/12). Tax yield from IR35 enquiries has also increased from £219,180 in 2010/11 to £1.25 million in 2011/12.
Martin Casimir, managing director of Bloomsbury Professional, was quoted in the Daily Telegraph as saying, “The crackdown on IR35 fits in with the wider picture of HMRC taking a much more aggressive approach to all sorts of tax cases where it suspects it is missing out on tax revenue…..
It looks like HMRC has been playing catch-up on IR35 in the past year. They've gone from almost ignoring IR35 breaches to getting tough around the time that the public sector personal service company scandal began to break.”
The fact is that the Revenue have been chasing the IR35 rainbow for a very long time, with little success, when comparing their original predictions back in 1999 that IR35 would protect the exchequer from the yearly haemorrhage of tax and NIC's of £80 million and £220 million respectively, to the previous Freedom of Information revelation:
| Year ended 5th April | No. of enquiries | Tax yield (£) |
|---|---|---|
| 2007 | 158 | 1,906,619 |
| 2008 | 104 | 1,730,640 |
| 2009 | 25 | 1,430,358 |
| 2010 | 12 | 155,502 |
| 2011 | 24 | 219,180 |
According to the Daily Telegraph, HMRC believes that it could recover up to £50 million going back several years, with a corresponding amount of interest and penalties.
A spokesman for HMRC said, “We have been reviewing our approach to IR35 since 2011…….
we have strengthened our specialist teams who enquire into IR35 cases and will further increase coverage in 2012/13.”
The latest figures appear to coincide with the discovery that more than 2,000 senior public sector officials and 150 BBC presenters were being paid via personal service companies. Perhaps the lion's share of last tax years £1.25 million haul came from these sources?
Ignorance about IR35 is still abound within the media typified by the Daily Telegraph's recent reporting of the Freedom of Information figures, in which it described the use of personal service companies as, ' a legitimate arrangement if the freelancer works for a large number of firms, but there is growing evidence that many people who just have one employer are also paid “off-payroll”.'
Contractors are educated in the ways of IR35 and have never been complacent about its threat and these latest figures, whilst not earth shattering, do signal HMRC's intent and will only serve to
sharpen a contractor's resolve.
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