New Freedom of Information data obtained from HMRC by the PCG reveals that the Revenue’s tax yield per individual IR35 investigation increased ten-fold over the last five tax years.
While IR35 cases yielded only £1,700 each on average until 2005/2006, the haul per case soared to almost £17,000 between 2006 and 2011. The data suggests better targeting by HMRC. In the first six years of the notorious regulations’ existence, the Revenue investigated 3,886 IR35 cases, which collectively netted £6.7 million. But between 2006 and 2011 only 322 cases were investigated, generating just slightly less – £5.4 million.
Even so, a leading chartered accountant and IR35 expert, Paul Spindler, remains decidedly underwhelmed by the figures. Over ten years, he noted, the average yield remains “shockingly low” at just £3,500 per enquiry. He shared his suspicion that many of HMRC’s IR35 enquiries have resulted in “no [tax] recovery whatsoever.”
HMRC has so far only revealed a “snippet” of the whole IR35 story, he added, making no mention of taxpayers who, like contractors working through umbrella companies, have opted for PAYE as a direct result of the legislation.
Mr Spindler’s views were endorsed by two other IR35 experts, Seb Maley of Qdos and Kate Cottrell of Bauer & Cottrell. Both believe that focusing on the apparent ineffectiveness of IR35 overlooks its “deterrent effect”, which may be the very factor that generates the most revenue for the Treasury rather than IR35 enquiries themselves.
The latter have fallen, they suspect, partly because HMRC is targeting higher risk workers, and partly because freelancers are learning how to operate outside of IR35 danger, such as taking the PAYE umbrella option.