The saga of IR35 is full of twists, turns, loop-the-loops and groin-kicks, and doesn’t show any sign of letting up soon, following George Osborne’s decision to take the path of least resistance in his 2011 Budget.

Now a freedom of information request from the PCG has forced HMRC to divulge some interesting figures which shed some light on their tremendous mis-management of IR35. Between April 2006 and April 2011 a paltry 322 IR35 investigations were initiated. Not only that but the figures show the numbers of investigations are dropping off significantly – down from a comparatively massive 158 in financial year 06/07 to just 12 in financial year 09/10 (although it did increase slightly to 23 last year).

 

IR35 Investigations

HMRC also released figures for the amount of tax recovered through IR35 investigations over the same period. Although the relationship between number of investigations and revenue over time is difficult to calculate (as different investigations may not have been finished in the same financial year they were started – in fact they often drag on for a number of years), this data shows if anything a more precipitous drop in numbers.

IR35 Investigations RevenueBy totting up these numbers it’s also possible to pull out some interesting facts about IR35 investigations. For example, the 322 investgations pulled in a total of £5,442,299, meaning the average IR35-related payout after an investigation was £16,901.55 (assuming all the investigations were concluded in favour of HMRC, which seems unlikely).

With an average income of just over £1 million per year, it would seem that not only is IR35 a detrimental legislation for the UK’s freelancers and contractors, it is not the money-spinner many believe it to be.

The PCG‘s John Brazier commented -

“These figures confirm what PCG has always said, that the tax yield from IR35 is minimal and that the stress and damage done to the UK’s 1.4 million genuine freelance businesses is completely unnecessary. It also shows us that IR35 is an unwarranted measure introduced by the previous Government.

“Despite the now evident worthlessness of IR35 it remains in place and, as directed in the Budget this year, its administration is being reviewed. PCG is currently working hard with the IR35 Forum to reduce the impact of IR35 but this new data reiterates what PCG has always believed, IR35 should be scrapped.”