Scrapping IR35 all very well – but what else?

AFTER a rather withering report from the Lords on IR35, followed by calls for its abolition, it seems fair to assume those at the top of HM Revenue & Customs would not define the issues around this particular piece of legislation as the department’s most edifying episode.

Indeed, for a rule designed to prevent people from lowering their tax bill by not being directly employed, the numbers and criticisms levelled against it are far from impressive.

There were 256 cases examined in 2012/13, compared to just 59 investigations into IR35 in the previous year, according to Bloomsbury Professional.

HMRC was heavily criticised at the time for the low number of investigations it had launched, but its response has seen revenues grow from £200,000 to £1.1m.

While that rise is huge proportionally, it’s still – even to the untrained eye – meagre. It should be pointed out the taxman estimates the rule’s deterrent effect safeguards closer to £550m, but the Lords found there was “no basis” to the claim.

But while the Lords suggested in their report the HMRC should “do more to justify the existence” of the rule, it did not call for an outright abolition – as contractors’, freelancers’ and independent professionals’ group PCG did.
There is a good reason for that, and it is simply this: what is the alternative?

How can we guarantee a quality piece of legislation can be drawn up, enacted and enforced better than the existing one? The process by which fundamental change in the LLPs’ sphere has gone through, for example, would suggest such an end is far from assured.

There is, of course, a degree of public interest following public and political anger when it was revealed 2,000 senior office holders of public bodies were revealed to be receiving payment off-payroll, while the BBC revealed in September 2013 that 148 of its 467 presenters were engaged in the same fashion.

But much of that comes from lack of enforcement, so I suggest this: Why not enforce it better?

Calum Fuller is tax correspondent for Accountancy Age and Financial Director

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