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How much does IR35 make for the Treasury?

Posted May 21, 2009

The leading association for freelancers and contractors has revealed that IR35 raises just £1.5m per year for the Treasury - yet it causes misery for thousands of small businesses who have to comply with the rules.

IR35 makes £1.5m per year

Via a Freedom of Information request, the Professional Contractors Group asked HMRC how much tax revenue is raised via the IR35 legislation.

Astonishingly, between the 2002/3 and 2007/8 tax years, IR35 raised just £9.2m for the exchequer. In its initial regulatory impact assessment back in 1999, HMRC expected to pull in £220m in additional National Insurance contributions alone as a result of the introduction of the IR35 rules.

Long-held suspicions

The PCG's Managing Director, John Brazier said that these revelations confirmed his long-held suspicions about IR35:

"IR35 makes very little money for the Government, and given the cost of enforcing it, and the number of failed investigations for HMRC, it may even cost more to implement than it actually brings in. This is a ludicrous state of affairs. IR35 restricts the flexibility of the labour market and is difficult to enforce. It should be abolished at the earliest opportunity.

"We intend to follow this information up with further Freedom of Information Act requests, as we believe there is more to be uncovered from HMRC. In doing so we will find out the true costs of IR35, and expose the wildly inaccurate premise on which it is based. PCG now has an even stronger case to make for IR35's abolition, which politicians of all parties cannot fail to ignore."

A complete failure

Given the massive failure IR35 has been from a revenue-generating point of view for the Government, it is hard to see how the Treasury can now justify its existence in any way.

The rules have been condemned by the contracting community and a wide array of tax experts since day one, they have resulted in many stressful compliance investigations by legitimate contractors, and of the 1458 IR35 investigations the PCG has had an involvement in, additional tax was owed in just six cases.

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