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HMRC IR35 case capacity revealed as only 250: the war on disguised employment is over

HMRC’s IR35 enquiries capacity is only 250 cases at any one time, which means the taxman’s war on disguised employment is effectively over. This is according to the IR35 Forum Minutes from the 11 February 2015 meeting, which also include the latest IR35 tax yield figures and enquiry numbers.

“The campaign to stop disguised employment has effectively ended. That four HMRC specialist teams with around 40 staff can only manage 250 concurrent IR35 enquiries proves that IR35 is effectively unenforceable,” highlights ContractorCalculator CEO Dave Chaplin.

“During the House of Lords Select Committee on Personal Services Companies (PSCs) inquiry, we were told by Jason Piper of the Association of Chartered Certified Accountants (ACCA) that IR35 needed 3,000 inspectors to be policed properly. Right now it’s like having only a single police car to enforce the speed limit across the country – hardly a deterrent!”

Chaplin believes that if HMRC’s measures to better administer IR35 introduced in May 2012 had been a success, then the IR35 enforcement team would be better resourced: “In simple terms every business likes to invest £1 and see a return of £2. Clearly this isn’t the case with IR35, as the tax yields shown in these minutes demonstrate.”

The IR35 statistics published in the minutes confirm that enforcement activity peaked in 2012/13 with 256 enquiries. Based on the 2013/14 number of enquiries, which reached 192, the taxman has a long way to go before reaching the 250 capacity.

Chaplin is also disappointed to see that HMRC continues to include its Exchequer risk figure of £520m, which is based on false assumptions: “The amount of money made by IR35 is the tax generated by those that operate it, and the paltry sums raised through enforcement action. We’ve shown that HMRC’s assumptions underpinning its £520m figure are nonsense.”

As agreed by the forum members in the last meeting, the minutes have been shortened to focus only on the key points and actions, which makes it harder than ever for contractors to determine what the forum is actually doing.

However, Chaplin notes that the minutes appeared in only six weeks, compared to the four months taken for the November 2014’s meeting minutes to be published.

Chaplin concludes: “HMRC’s fifteen-year attack on ‘disguised employment’ – which in reality has unfairly targeted too many genuine contractors – is effectively over. And rightly so, because the flexible workforce should have the right to choose how it engages with clients without being overruled by a tax-hungry Treasury.”

Published: 27 March 2015

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