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IR35 raises millions each year from self-certifying contractors
Posted Nov 9, 2011
A new Freedom of Information Request reveals that significant sums of tax have been raised from contractors who self certify themselves as being caught by IR35.
Previously, when working out the real tax take from IR35, some commentators have relied on the sums raised as a result of IR35 status reviews (which is minimal), to demonstrate how ineffective IR35 has been as a tax raising tool.
FOI request reveals P35 data
The FOI request was made by industry site ContractorCalculator, and asked HMRC to reveal how many companies answered 'Yes' to Question 6, Part B on the P35 (Employer Annual Return) form from the tax year 2000/1 onwards.
Over the years, the wording of Question 6 has changed several times, however the introductory paragraph has remained the same since its introduction to the P35 form in 2003/4:
"Do the rules relating to services provided through an intermediary (sometimes known as IR35) apply to any work carried out by any worker listed on this return?:
An additional question, "Are you a service company?", also appeared from 2007/8 following the introduction of the Managed Service Company legislation.
A company answering 'Yes' to the question has at least one employee who is caught by IR35, and is therefore due to pay a deemed payment on his or her employment income.
How much IR35 tax has been collected from self-certifying contractors?
The total number of P35's included in the data varied between 1.7m and 2.6m, and the number of individuals who answered "Yes" to Part B of Question 6 varied between 2,000 and 29,000 during the years in question.
Although there is no tax yield data available relating to these numbers, the contractor news site suggests that if we estimate the tax take from each case is around £10,000 per employee caught by IR35, HMRC could have raised between £20m and £290m each year since 2000/1.
Using the data released for each tax year, the tax take from self-certifying individuals since the implementation of IR35 could have totalled over £900m.
It is also believed that millions are raised each year from the additional National Insurance Contributions of contractors who have joined umbrella companies as a result of IR35.
This latest revelation could further explain why the Chancellor believed that the abolition of IR35 would put substantial revenue at risk, during Budget 2011.
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