The abolition of IR35 is the only logical conclusion that the Lords can reach following their inquiry into the use of personal service companies (PSCs). But getting rid of IR35 is politically unacceptable, so it seems likely that what we’ll end up with is the Lords recommending yet more tinkering with the rules.
Based on the evidence from dozens of witnesses and written contributions, the message to the Lords has been that IR35 is not working. Not only is it not generating large sums of tax, but it is also costing large amounts of money to administer.
One expert accountancy witness, Association of Chartered Certified Accountants’ Jason Piper, told the Lords that it would take 3,000 inspectors to properly enforce IR35. And how many does HMRC actually have? Just 40.
Unfortunately, a recommendation to abolish IR35 would make those Lords participating in the inquiry look daft in the eyes of what is sometimes the fantasy world that is Westminster. So we’re unlikely to see a recommendation based purely on the evidence, and that does not get thrown off course by what some choose to call ‘reality politics’.
This will please HMRC, which has repeatedly ignored Freedom of Information Act requests from ContractorCalculator to reveal how effective the new measures introduced in May 2012 have been. The taxman did provide some data to the Lords on IR35’s enforcement, but sneakily it did so in a form that doesn’t allow proper analysis, and so was misleading and next-to useless.
I’ve been stonewalled by HMRC for over eight months after requesting data on the impact of IR35 and the new measures from May 2012. HMRC has released some data on IR35 spanning 2011 and 2012, but it has specifically avoided publishing data that details its enforcement performance between May 2012 and April 2013, the first full year of the new regime.
We are now going down the route of appealing to the Information Commissioner because HMRC has either ignored our requests or tried to fob us off with excuses.
One has to ask the question: why is HMRC refusing this data? What is the taxman afraid of? Our suspicion is that the results will show that the new IR35 regime has been totally ineffective at generating new tax yield.
It seems likely that 40 tax inspectors and support staff focused entirely on IR35 are costing us taxpayers hundreds of thousands of pounds and generating little or nothing to earn their keep. What’s worse, their efforts are being directed away from the big corporate tax avoiders and evaders who test every possible angle to prevent taxpayers (their customers) benefitting from fair tax on their UK-generated profits.
The Lord’s inquiry is due to report later this month. But we’re not getting excited. Perhaps there will be an acknowledgement that PSCs are a legitimate form of trading for knowledge workers. We may also see recognition that not all PSC users are vulnerable workers who have been forced into that way of working.
The real tragedy of the affair is that huge sums of money and time has been spent on demonstrating officially that IR35 is a total waste of time and energy, but we won’t see that verdict because political expediency says it can’t be said.