Q. Can you please advise if IR35 reform in the public sector has resulted in a net increase in annualised tax revenue for HMRC, and if so, by what percentage? I am trying to ascertain the net cost-benefit to the Government and society generally, of the public sector reform.
A. The Government firmly believes that public sector reform has been a success, often quoting the additional £410m raised in income tax and NICs as a sign that changes have improved IR35 compliance. However, this figure was published nearly two years ago so it will have likely increased by now – particularly given that reports of blanket IR35 decisions are still being applied despite the fact that reform was introduced over three years ago.
Additional tax revenue isn’t a sign that reform has increased compliance either, as FCSA’s Julia Kermode, who was quoted in the House of Lords IR35 report, explained: “HMRC has stated that the public sector reforms were successful and delivered an increase in compliance by virtue of the fact that more payroll taxes were taken. I argue that that does not demonstrate an increase in compliance; it demonstrates an increase in people being put on payroll, perhaps incorrectly.”
Of course, it should come as no surprise that the Government is adamant that public sector changes have worked. In claiming this it gives them even more reason to roll out similar reform in the private sector, albeit a year later than planned.
Although, it doesn’t look like private sector changes will land before a review into public sector reform is carried out – but whether this will be influential at all remains to be seen. Following the arrival of the highly-critical House of Lords report last month, the Treasury’s Jesse Norman announced there will be a review of the public sector changes, which he expects to be complete before 6th April 2021 – the date on which private sector changes are set to arrive. We’re yet to hear when the review into public sector changes will commence, but its arrival may reveal the true tax take of the initial reform – if damning, it could have a say over how private sector reform is enforced next year.
So while the Government is somewhat cagey about how much money public sector reform has raised, we are likely to learn more in due course. When that time comes and depending on whether the review is extensive (like the House of Lords report) or simply lip service (similar to the one held into the private sector by the Government earlier this year) a clearer picture could emerge.
This answer was provided by IR35 specialist, Qdos Contractor.