New approach to IR35 nets taxman £1.1m

Freelancers using personal service companies can now have their say to the taxman on last year’s changes to IR35, in a move that makes good his promise at the last IR35 Forum to want “stakeholders” to feedback on the reforms.

In an update to its website yesterday, HM Revenue & Customs said such freelancers can submit their views on the new, piloted IR35 processes, including the Business Entity Tests, via a dedicated web-page.

As well as a PDF listing questions and issues to help focus freelancers’ responses, new information on its approach to IR35 was released by HMRC in yesterday’s update, which freelancer can use to inform their comments.

In particular, the department says that the 256 IR35 cases launched in 2012-13 have resulted in a tax yield of £1.1million, yet this total includes enquiries into PSCs that began before that tax year.

Eighty-five of the IR35 cases – about a third of the total – resulted in no tax being paid, meaning IR35 was found not to apply, while “many” of the 256 were closed within three months thanks to “customer cooperation”.

The Revenue added: “All [256 IR35 cases] were closed within 12 months, fulfilling HMRC’s commitment to close cases early where on investigation they were low risk.

“Some of the cases opened in 2012-13 are still open and these represent cases where HMRC consider there are still risks that need addressing.”

Employment status advisers are likely to seize on the yield of £1.1m as evidence that the new approach to IR35 – unveiled in May 2012 - is paying off for HMRC, especially as only £220,000 was raised from IR35 enquiries in 2010-2011.

The biggest yearly haul from probing freelancers under the rule was in 2005-06 when a total of 656 enquiries generated £2.3m - and is in contrast to the two tax years following IR35’s introduction, both of which returned a tax yield of nil, as the following table shows:

Tax Year

No. of Enquiries

Total Yield

2000 - 2001

16

nil

2001 - 2002

261

nil

2002 - 2003

1,016

£946, 275

2003 - 2004

1,166

£1.9m

2004 - 2005

771

£1.4m

2005 - 2006

656

£2.3m

2006 - 2007

158

£1.9m

2007 - 2008

104

£1.7m

2008 - 2009

25

£1.4m

2009 - 2010

12

£155,502

2010 - 2011

23

£220,000

2011 - 2012

59

£1.2m

2012 - 2013

256

£1.1m

2013 - 14 (to date)

112

(yet to be disclosed)

 


Dec 12, 2013
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