New statistics pour more scorn on IR35
Pamela Nash, Labour MP for Airdrie and Shotts, recently posed two Parliamentary written questions to the Treasury asking how many IR35 enquiries there had been and what the tax yield was in each of the last 5 years for:
- UK;
- Scotland;
- England;
- Wales; and
- Northern Ireland
David Gauke, the Financial Secretary to the Treasury, eventually responded with the following figures for the U.K only, as regional data is not produced by HMRC:
| Year | No. of enquiries | Tax yield (£) |
|---|---|---|
| 2009/10 | 12 | 155K |
| 2010/11 | 23 | 219K |
| 2011/12 | 59 | 1.2M |
| 2012/13 | 256 | 1.1M |
| 2013/14 | 192 | 430K |
After exhausting themselves for the first six months of 2013/14, when HMRC took up 112 new enquiries, the department took their foot off the pedal a little so as to catch their breath!
We already knew the pitiful statistics for all years prior to 2013/14 but the figures for the last tax year only serve to remind us what a hopeless piece of legislation IR35 is in terms of tax raising. Generating revenue however is not what IR35 is about as Mr Gauke highlighted when he noted in his reply that the cost to the Exchequer without IR35 would be around £520 million a year. Deterrence is the justification for maintaining this unwieldy piece of legislation.
Last year, Rowena Fletcher, Deputy Director with special responsibility for the Employment Status Team, estimated that it cost the Revenue £700,000 to police IR35, when she gave evidence to the House of Lords Select Committee on PSC’s. Ratio of cost: protecting potential lost revenue would appear to present a case for the continued existence of IR35.
Fletcher was also at pains to explain that the yield of the IR35 teams should not be evaluated to the work that they do and that the department do not allocate costs against specific pieces of tax legislation. Furthermore, raising tax yield is only part of the teams work as the teams also help to manage future risk.
It is also interesting to note that both written questions were posed under the heading, ‘Self-employed: Tax Avoidance’! I wonder if Ms Nash has been spending too much time in the company of her Labour colleague and renowned tax expert, Margaret Hodge, who believes that any form of legitimate tax planning amounts to tax avoidance and culprits should be tarred and feathered with the tax evasion brush.
Last year the Revenue told us that annual IR35 statistics will be published each April by via the IR35 Forum, relating to the preceding tax year and will include:
- Number of new enquiries in the year;
- Number of enquiries settled in the year;
- Number of enquiries won by contractors in the year;
- Total yield from cases where IR35 is successfully applied in the year; and
- Average time taken to settle cases in the year
We’ve had the taster, so not long to wait for the remainder of the damning evidence that denounces IR35 as a revenue raising white elephant.
£2,200 raised in revenue per case in 13/14, HMRC should also publish how much the average case costs them to pursue!
The cost of collection versus the tax gain is certainly a good argument that IR35 as-is doesn’t work. But…
We have to be careful here. If we fail to win the moral argument (that IR35 is unfair) then IR35 may be replaced with something much worse – something that catches a lot more people.
That’s why the PCG have been treading their usual dangerous course for many years in demanding “certainty” – that can easily be achieved by adjusting IR35 into something that says “you’re all caught” – whereupon we’re all also certain (and certainly unhappy, mostly with the PCG being their usual incompetent self).
We need to keep at the Treasury, HMRC and the silly IR35 Forum with the argument that IR35 is unfair to those inside it – for the very simple reason that they have to pay not only Employees NI but also Employers NI throughout their (caught) income.
They will try the old argument that it’s the company that pays the ER NI while the individual pays the EE NI and we MUST point out that they are EFFECTIVELY one and the same, since the company is largely forced upon contractors working through agencies (and nearly all contractors have to do that).
Although the Sch D sole trader’s remuneration is paid to their business bank account (on which they pay income tax and Class 2/4 NI that is less than employees NI) the Ltd Co contractor’s remuneration is paid into the Ltd Co and it is the deductions from that point onwards that must be taken into account when comparing their positions.
These people routinely duck this issue – don’t let them. The IR35 Forum’s report to the government actually stated taht contractors were “broadly taxed as per employees”. Nonsense!!! Employees don’t pay Employers NI, what they said may be true if looked at from their side of the fence in that THEY receive the same amount of tax, but it is being paid by different parties.
And on that forum we had the PCG, Kate Cottrell and others purporting to represent the contractor. Something doesn’t feel right?
They are in the middle of yet another round of consultation – you can email John Whiting and the team at:
ots-employmentstatus@ots.gsi.gov.uk.
It’s not quite too late, they say:
“Whilst we welcome responses at any time, as we aim to publish our report at the end of February 2015, it would be most useful to receive input by 31 December 2014.”
I wonder how they would feel if they were hit by a deluge of contractors saying that they want the unfair ER NI issue sorted out.
The only winners from IR35 are all those companies offering to screen contracts and provide umbrella services to shield customers from IR35. It’s unworkable, uneconomic and pointless.