IR35 tax take on the decline
The yield HMRC get from investigating freelancers under IR35 has had a steep decline this year. Despite the number of enquiries taking place falling only very slightly, there has been a drop of £670,000 in the amount that has actually been collected.
The figures that HMRC have released concerning their annual IR35 income have shown that yield from the tax year 2012-13 was £1.1 million and this has taken a real nosedive, down to just £430,000 in 2013-14. The number of enquiries only fell from 256 to 192 during the same periods.
Pamela Nash, MP, requested the details of these figures from the department under the Freedom of Information Act, and the results demonstrate that the yield from IR35 is down by 61 per cent on last year. This means that HMRC raised by the ‘compliance interventions’ has fallen to its lowest level in three years, and it has been noted that during this time there have been reforms made to make the rule more effective.
However, given that the yield hasn’t been so low since 2010-11, there has been some speculation over the fact that the House of Lords had recommended that the department made efforts to ensure that the rule had its ‘intended effect’. After originally being presented with data that suggested the ‘exchequer risk’ was £450 million, Deputy Director Rowena Fletcher told the House of Lords Select Committee that the true figure was closer to £550 million, a figure which is now being called into question.
With around £30 million which has been netted as a direct result of IR35, David Gauke, a minister for the Treasury, has once again stated that the cost of not having IR35 would be around £520 million every year. He also said that there is no way of providing any regional data which would apply to Ms Nash’s Scottish constituency as that kind of information is not produced by HMRC.
The IR35 forum is debating the reasons why the IR35’s enquiry yield has fallen so substantially despite the number of enquiries taking place dropping by only a quarter. The debate may also encompass other years as well as the 2013-14 tax year, in order to attempt to establish why the yield has dropped.
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