IR35 tax yield revealed

News: December 2011

IR35 tax yield revealed

If you use your own personal services company to provide services, you will be well aware of the infamous IR35 rules. When they apply they result in the income of your company from the end-users being treated as your own earnings, with the result that PAYE and national insurance contributions are due.

In response to a recent Freedom of Information request HMRC was forced to admit that over the past 5 years only a paltry 322 cases were reviewed by way of a formal enquiry! What’s more, the tax yield from cases reviewed was only £219,000 in 2010/11, compared with £1.9 million in 2006/07.

Of course IR35 does have a deterrent effect, but even so the above statistics suggest that the complexities and uncertainties of the IR35 legislation are out of all proportion to the amount collected. Whilst it is probably wishful thinking that it will be abolished, there are grounds for suggesting that certain arrangements which have been brought within IR35 should be reviewed to see if the position can now be rectified. That includes situations where a personal services company was not established as it was thought that IR35 will bite.