A startling decrease in the number of IR35 status reviews has occurred over the last few years, according to new data released by HMRC. The amount of tax raised through the investigations has also plummeted dramatically.
The information was disclosed in response to a request to HMRC about the number of IR35 status enquiries it has undertaken over the last five years. The figures show that 158 reviews were undertaken in 2006/7 and only 104 the following year. Subsequently, the number dropped precipitously: only 25 took place in 2008/9 and a mere 12 in 2009/10, rising feebly to 23 in 2010/11.
Tax yields from the reviews don’t always correspond to the year in which the investigations took place, but the money raised has also undoubtedly been declining just as sharply.
The HMRC data also shows that it’s not just the number of IR35 status reviews that has shrunk massively in recent years: the amount of tax yielded as a result has also nose-dived, falling from almost £2 million in 2006/7 to a paltry £155,502 in 2009/10. The sum for 2010/11 was £219,180, almost a tenth of that raised just five years earlier.
The lamentable numbers are likely to undermine any continuing justification for retaining IR35. The PCG’s Managing Director, John Brazier, said that the figures confirm what his organisation has always maintained – the tax yield from IR35 is “minimal” and the damage it has done to the UK’s 1.4 million freelance businesses “is completely unnecessary.”
Brazier believes that it is becoming increasingly difficult for the Treasury to justify the continued existence of “this unwarranted measure.” Is that a death knell tolling in the background?