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IR35 enforcement useless without more staff, experts say

The House of Lords heard from a panel of experts this week that IR35 enforcement is useless without more inspectors to actually carry out the work.

More exactly, the Select Committee on Personal Services Companies heard just the other day that HMRC would need around 3,000 inspectors to actually function effectively as a deterrent to individuals trying to falsely hide behind a contract worker status to disguise their employment. The figure isn’t an arbitrary one, either – experts told the committee that you would need those many inspectors in order to undertake the 20,000 yearly investigations that the personal service company-using contractor community needs – a far cry from the 250 enquiries that actually happen on a yearly basis.

That figure absolutely boggles my mind. 20,000 yearly investigations? For what it’s worth, that sounds incredible. I mean some figures say that there are around 200,000 personal service companies active in the UK right now, and that means that a full 10 per cent need to be investigated on an annual basis. Does this figure seem incredibly high to anyone else besides me? Are there that many people trying to get around the taxman by using a personal service company, or is this just wishful thinking on the Treasury’s part – that they’ll catch so many so-called contractors with their pants down that they can simply rake in all that missing tax revenue?

On the one hand, that’s a lot of money going unaccounted for, and it could put a sizable dent in the public debt the UK is labouring under at the moment. At the same time, if this is just a pipe dream why pursue this whole line of questioning? It can’t possibly be without cost to the Government to employ, train, and then support 3,000 HMRC inspectors – is this a cost that would possibly eat into any revenue an increased number of investigations would draw in?

And that’s if there actually are that many individuals using disguised employment as a route to tax avoidance. What if these 20,000 investigations turn up nothing? Isn’t that just wasted time and money? You know it costs quite a pretty penny to defend against an IR35 investigation – this could leave plenty of innocent contractors in serious financial straits if this idea of supercharging HMRC’s ranks of inspectors is pursued. What a mess – hopefully the House of Lords will choose a different path to pursue.

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