Winchester MP Steve Brine is backing PCG, the voice of freelancing, as it calls on the Government to explain more clearly why IR35 was retained. This comes in light of HMRC's response to a freedom of information request which revealed IR35's recent tax yield and that only 322 cases have been examined in the last five years.
IR35 came into force in 2000, and was designed to counter tax avoidance by the use of so-called personal service companies.It prevents freelancers working temporarily for a sole employer without a heavier tax burden than if they did less work for a wider number of businesses.
However, it has drawn a lot of criticism, as IR35 is said to be too complex, and has a harmful impact on many small companies which exist for reasons other than tax avoidance or evasion. These include many companies owned by IT professionals and other freelancers, who often have many short-term contracts rather than one steady employment.
John Brazier, Managing Director 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."
Local MP Steve Brine added; "As a former freelancer myself, I am very supportive of these calls from PCG and have always felt IR35 was a regressive tax. The Chancellor simply must remove this barrier to economic growth and do it as soon as possible. He has a great opportunity in the November statement to release businesses from this ridiculous burden and free up HMRC resource to work on better things. At this time more than ever, we need to be giving business every opportunity for growth, and freelancers make up a good chunk of that. These figures are very interesting, and I will be pushing for a full review and continuing my campaign to have it removed."
Pictured; Steve, a former freelancer himself, is backing a challenge made on IR35 by PCG
You can view the FOI request, and the answers provided, below.
IR35 Status Enquiries 6 April 2006 to 5 April 2011
How many IR35 status enquiries has HM Revenue & Customs (HMRC) undertaken (by year, over the last five years).
What was the tax yield from these enquiries (by year, over the last five years).
HMRC confirms that it holds the information requested.
The number of reviews opened by HMRC for the last five years, where the intermediaries legislation (more commonly referred to as IR35) was identified as a risk, is as follows:
6 April 2006 to 5 April 2007 is 158
6 April 2007 to 5 April 2008 is 104
6 April 2008 to 5 April 2009 is 25
6 April 2009 to 5 April 2010 is 12
6 April 2010 to 5 April 2011 is 23
The tax yield recovered in relation to these reviews cannot be identified. This is because a review is not always concluded in the same year that it was opened. However, HMRC can provide the tax yield received for the requested years, which is:
6 April 2006 to 5 April 2007 = £1,906,619
6 April 2007 to 5 April 2008 = £1,730,640
6 April 2008 to 5 April 2009 = £1,430,358
6 April 2009 to 5 April 2010 = £155,502
6 April 2010 to 5 April 2011 = £219,180