The Professional Contractors’ Group (PCG) has been lobbying the government to get rid of the tax rule IR35 as the cost of enforcing the controversial rule has been proven to be greater than the tax income it creates.
Freedom of Information rules allowed PCG to access accounts which showed that IR35 had only raised £9.2m in tax for the tax years 2002/3 until 2007/8. Originally the government had predicted that the IR35 rule would bring in £220m per annum.
John Brazier, managing director of the PCG said, “IR35 makes very little money for the government, and given the cost of enforcing it, and the number of failed investigations for HM Revenue and Customs (HMRC), it may even cost more to implement than it actually brings in. IR35 restricts the flexibility of the labour market and is difficult to enforce. It should be abolished at the earliest opportunity”.
The introduction of IR35 was to counteract non-payment of tax by using personal service companies. The government said that freelance workers on long-term contracts should have the same tax responsibilities as permanent staff. Opposition to the rule has always stated that the rules penalised freelancers as they ended up paying higher levels of tax than permanent employees.
The Professional Contractors Group said that they had been involved in 1,468 IR35 investigations and only six resulted in tax being owed to HMRC.