Feeds

IR35 tax is a huge failure

Tiny tax take leaves controversial system in jeopardy

Top three mobile application threats

Opinion Under the Freedom of Information Act, the Professional Contractors Group has been able to find out how much tax the British government has raised from IR35.

IR35 was introduced in 2000, as a means for the Government to stamp out what it considered to be "disguised employee" arrangements, which reduced tax and national insurance payment of supposed freelancers by 25 per cent. The introduction of the tax caused uproar among UK contractors, especially in the tech and engineering industries, who operated alone as one-person companies or as two-person companies in partnership with wives or husbands.

Through its FOI request, the PCG has established that the Government raised just £9.2m from IR35 in the tax years 2002/3 to 2007/8. No wonder the Government said it didn’t know how much revenue it earned from IR35 when asked in Parliament and elsewhere.

It is raising just £1.5m a year from the tax, a tiny amount in terms of the overall tax burden. The Government had expected to raise £220m a year in National Insurance contributions alone, without even taking the extra income tax into account.

The Government must have noticed the big disparity between what it expected to raise and what it is getting - a fraction of one per cent of what it anticipated from the introduction of IR35. How many contractors can be paying this tax - a couple of thousand?

HMRC is spending an extra £1bn in chasing up tax evasion and you can see what a paltry amount it is collecting for its trouble. All the cases being fought in the High Court and at the Special and General Commissioners over IR35 have just been a monumental waste of effort.

According to the PCG, HMRC has won just a handful of tax investigations out of thousands. Indeed, of the 1,468 IR35 investigations PCG has been involved with, HMRC proved additional tax was owed just six times. The Government can’t continue to waste its own time, and that of HMRC and countless IT contractors, over a tax that probably costs more to collect, with sundry litigation costs, than it brings in

When opposition MPs get a hold of this information, IR35 must be doomed. One cannot see the Conservatives deciding this tax is worth retaining when there is an opportunity promise its abolition and grab the votes of thousands of contractors across the country.

Surely the Government will have to drop IR35, now that the cat is out of the bag. The PCG has proved that the system as it stands is a miserable failure. It would be both obstinate and stupid to keep it.

We know that Gordon Brown is obstinate, but he’s not stupid. Watch the pressure for its abolition to mount.

Gerry Mclaughlin is the founder of IT Contractor, a portal for, yes, IT contractors.

Top three mobile application threats

More from The Register

next story
Sorry London, Europe's top tech city is Munich
New 'Atlas of ICT Activity' finds innovation isn't happening at Silicon Roundabout
MtGox chief Karpelès refuses to come to US for g-men's grilling
Bitcoin baron says he needs another lawyer for FinCEN chat
Dropbox defends fantastically badly timed Condoleezza Rice appointment
'Nothing is going to change with Dr. Rice's appointment,' file sharer promises
Audio fans, prepare yourself for the Second Coming ... of Blu-ray
High Fidelity Pure Audio – is this what your ears have been waiting for?
Did a date calculation bug just cost hard-up Co-op Bank £110m?
And just when Brit banking org needs £400m to stay afloat
Zucker punched: Google gobbles Facebook-wooed Titan Aerospace
Up, up and away in my beautiful balloon flying broadband-bot
Apple DOMINATES the Valley, rakes in more profit than Google, HP, Intel, Cisco COMBINED
Cook & Co. also pay more taxes than those four worthies PLUS eBay and Oracle
prev story

Whitepapers

Designing a defence for mobile apps
In this whitepaper learn the various considerations for defending mobile applications; from the mobile application architecture itself to the myriad testing technologies needed to properly assess mobile applications risk.
3 Big data security analytics techniques
Applying these Big Data security analytics techniques can help you make your business safer by detecting attacks early, before significant damage is done.
Five 3D headsets to be won!
We were so impressed by the Durovis Dive headset we’ve asked the company to give some away to Reg readers.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Securing web applications made simple and scalable
In this whitepaper learn how automated security testing can provide a simple and scalable way to protect your web applications.