Through data gained from the Freedom of Information Act, the Professional Contractors Group (PCG) this week announced that the controversial IR35 rule has only gained HMRC around £1.5 million per year. HMRC had expected IR35 to gain them £220m per annum in National Insurance Contributions alone. However, it seems this is not the full story.

When HMRC measures the income that is directly attributed to IR35 it will not take into account the umbrella companies which were formed as a result of IR35 and the tens of thousands of contractors employed by them. In actual fact PAYE income tax and NIC bills from the umbrella company giants are amongst the largest in the UK.

It is impossible to draw conclusions on the benefits of IR35 to the exchequer as it is unclear how the IR35 revenues have been calculated. Many contractors using an umbrella company are not doing so because their contracts are believed to be within IR35. Many newer contractors prefer not to run a limited company, instead opting for the convenience and simplicity of using an umbrella company.

The likelihood is that IR35 is here to stay as its abolition could result in a major increase in limited company registrations and offshore solutions, which would definitely not suit HMRC or the Treasury.

PCG still believes that there is more to be gained from following up with further Freedom of Information requests to HMRC. They commented, “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.”

It is clear, however, that sweeping changes to tax legislation are unlikely to be made by the government or the opposition, especially if they will only make a small contribution to the reduction of the budget deficit or the reparation of UK PLC’s finances.

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