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Startling drop in tax yield from IR35 status enquiries
Posted Sep 22, 2011
Data released by HMRC shows that the number of IR35 status reviews has shrunk massively in recent years, as has the amount of tax yielded as a result of such enquiries.
IR35 figures come as a shock to the industry
Responding to a request which asked how many IR35 status enquiries had been undertaken over the last five years, HMRC revealed that it undertook 158 in the 2006/7 tax year, followed by a mere 104, 25, 12, and 23 in the subsequent years ending in April 2011.
Although the tax yield in relation to these specific reviews does not always respond to the year in which the status enquiry was conducted, the yields for the requested years has been rapidly dwindling from £1,906,619 in the 2006/7, to a mere £155,502 in 2009/10 and £219,180 in the year ending 2011.
To many in the industry, these figures will come as quite a shock. Although the tax yield from IR35 enquiries does not reflect the total tax raised as a result of IR35 as a whole (for example the National Insurance Contributions paid by umbrella company contractors), the pitiful number of enquiries will surely further undermine any justification for keeping IR35 in place.
More proof that IR35 is an "unwarranted measure"
Commenting on the disclosure, John Brazier, MD of PCG, said:
"These figures confirm what PCG has always said, that the tax yield from IR35 is minimal and that the stress and damage done to the UK's 1.4 million genuine freelance businesses is completely unnecessary. It also shows us that IR35 is an unwarranted measure introduced by the previous Government."
The contractors' group is working with the IR35 Forum to improve the way the Intermediaries Legislation is administered following Budget 2011, however Brazier said that it was getting increasingly difficult for the Treasury to justify the continued existence of IR35:
"It is now time for the decision makers to explain more clearly to freelancers and the public why the risk to the Exchequer would be simply too great if IR35 was abolished or suspended."
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