Since IR35 has been in force, HMRC investigations have resulted in 4,208 IR35 reviews that between them generated just over £12.1m in tax – or an average of less than £2,882 per review. But the data needs to be put into the context of the overall tax take that has come due to IR35.
HMRC has published the number of IR35 reviews opened and the tax revenues generated in the first six years following the introduction of the legislation, 2000-2006, in response to a Freedom of Information (FOI) request.
The data shows that 3,886 reviews were opened and £6,684,273 in tax was raised between 6 April 2000 and 5 April 2006. Coupled with the results of an earlier FOI request, the data shows that the IR35 tax take as a result of HMRC investigations to be just over £12.1m in tax.
“The lifetime total of £12.1m from 4,208 reviews revealed by the two FOI requests on the face of it falls well short of the anticipated £200m a year initially forecast by HMRC,” says ContractorCalculator CEO Dave Chaplin. “However, this data does not reveal the full extent of the revenue generated by IR35 in addition to that raised as a direct result of investigations.
“Significant tax revenues have been generated from contractors acknowledging that they are caught by IR35 and applying the intermediaries legislation and its required deemed payment accordingly,” he continues. “It also does not include the indirect results of behavioural changes, such as contractors caught by IR35 choosing to trade via umbrella companies or via agency payrolls, where the level of PAYE income tax and National Insurance Contributions (NICs) is much higher.”
And according to a spokesperson for PCG, full disclosure by HMRC of all the facts surrounding the impact of IR35 from its inception in 2000 to the present day is overdue: "Our members wanted to see the full picture, not just snap shots of particular years. Openness, fairness and transparency for freelancers is what PCG has been campaigning for since the inception of IR35. It would appear we are on the right road to achieving that openness and hope now that clarity and consistency will now follow for all those affected."
This latest FOI request also shows that the peak number of reviews opened by HMRC in the early years of the legislation are two orders of magnitude higher than those opened in 2010-2011. Chaplin explains: “The number of new IR35 reviews in IR35’s heyday was 1,166 in 2003-2004. That’s fallen dramatically to just 23 in 2010-2011.
“There are likely to be a number of contributory factors. Contractors are better prepared and the IR35 services sector is much more mature now. Most potential reviews are nipped in the bud by clued-up professional advisors before they become full-blown IR35 investigations. It’s also quite possible that HMRC is focusing its efforts elsewhere, where it can expect higher tax yields.”
Chaplin concludes: “Through FOI requests, HMRC is gradually releasing data demonstrating that the direct tax revenues generated by its IR35 compliance activities are modest, to say the least. But this information is certainly not sufficient cause for the Chancellor to abolish IR35, which is why IR35 was retained in the 2011 Budget.”