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IR35 – a fudge of the highest order

IR35 – a fudge of the highest order

It is interesting to note that before an MP takes his or her seat in the House they are required, by a law dating back to 1562, to swear or affirm an oath of allegiance to the Crown. Perhaps surprisingly they do not make any promises to behave but rely on a long tradition of honest and open behaviour instead. Which is perhaps a good thing; MPS are, after all, honourable people…

Our friends in the PCG have been asking questions of HMG again, digging even further into the financial history of IR35. And they now have a breakdown of the cases and income arising for the whole life of the law to date. And it makes for fascinating reading (OK, fascinating if you’re a detail freak like me, I admit).

Nevertheless, the total number of cases to date is 4208. The total income from IR35 is precisely £12,126,572.00. And that means that the average tax gained per case is £2,881.79p. Be still my beating heart, Gordon must be so proud.

This, you may recall, from a tax measure that was intended to bring in around £900m. A year. Every year. So not exactly a resounding success then. And we don’t yet know the cost of collecting that twelve million, but with the average case costing the defending side about ten thousand, we could make a worst case stab at around five thousand for HMRC’s side. This means, even if vaguely accurate, they spent twenty one million to gain that twelve million. Hmm… Not looking good, is it?

The distribution of the cases over the years is also interesting. Sixteen cases the first year, a couple of hundred the next. It peaks in 2004 and then drops away remarkably quickly so that in the last two years there have been just thirty five. That distribution coincides rather neatly with the time that PCG got its act together and started to get the message out that IR35 is largely a voluntary tax, if you know what you’re doing.

Ah yes, “voluntary”. What we don’t know is how many people are paying up under IR35 or working through umbrellas to avoid it, which amounts to the same thing. There must be quite a few, there are lots of people using umbrellas. So we have an unknown amount of taxes being paid for no reason at all other than fear, or at least uncertainty, over how a law of the land actually works.

So what was my first paragraph all about, I hear you ask.

We’ve been asking for the numbers for a long time. Since around 2003, in fact, when we first started to think things weren’t going well for HMRC. And answer came there none. Well, not strictly true, that well known failed tax evader, Ms Primarolo, replied to a written question in 2004 (when there were exactly 771 cases and precisely £1,973,851 in IR35 taxes paid) that it was not possible with any accuracy to isolate data relating solely to this legislation. Furthermore, a year or so later, Kitty Ussher said in response to the same question, “Disclosure of HM Revenue and Customs’ compliance data relating to the legislation would result in a risk of non- compliance with the legislation. Accordingly I am not able to provide the data requested”. Don’t know about you but I see that as a fudge of the highest order.

But, as we have seen, the numbers have been there all along. Perhaps the honourable ladies were so embarrassed by the total disaster they were defending that they chose to evade the question. Dim Prawn is still in Government, and is reduced to only being able to threaten MPs as a Deputy Whip. Ms Ussher was forced to resign over being caught evading – sorry, didn’t mean that, I meant avoiding – paying quite a lot of taxes on the sale of her house.

As I said, honourable members both.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: IR35 Tax Yield by some dude who wants to be famous

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