Contractors group criticises IR35 data gap

There has been a sharp increase in the number of IR35 reviews being opened by HMRC, but there remain ‘large gaps’ in the data the department has about its effectiveness, according to research by the Pulse Umbrella Group, reports Harris & Co accountants Northampton.

Pulse, which provides a range of services to contract workers, says the response it has received to a recent Freedom of Information Act (FOIA) request shows that HMRC does not hold data on the number of companies or individuals identified as possible targets for investigation since 2001, nor the total cost of investigations since that date.

HMRC also failed to provide details of how many of the investigated individuals paid immediately or entered a time to pay deal; whether any investigations resulted in the seizure of property to settle debts or other enforcement; and how many investigations were settled early and what discount settlements were received on the alleged total amount owed.

Chris Futcher, CEO of the Pulse Umbrella Group, said:

The amount of information HMRC is failing to collect on IR35 does raise a lot of questions about the business case for it. IR35 investigations can take years in some cases and can be hugely stressful for contractors who are just trying to get on with a job. The least HMRC should be doing is justifying their actions by identifying what effect this tax legislation is having.

Futcher said wider research by the group, which included looking previous FOIA request responses posted on the HMRC website and at news reports, indicated that the number of IR35 reviews is once again on the increase.

Pulse’s analysis shows the number of reviews HMRC opened in any one year peaked in 2003-04 at 1,166. Subsequently the trend was downward, with only 12 reviews in 2009-10. However, the group says this is now being reversed. There were 59 reviews opened in 2011-12, while April to November 2012 saw 193 reviews opened.

The group says that the tax yield recovered from specific reviews cannot be identified as reviews are not always finished in the same year they open. However the tax yield for the financial years 2010-2011 was £219,180, increasing to £1.25m in 2011-2012.

Futcher said:

‘HMRC seems to really be gunning for contractors now, with the numbers of reviews climbing sharply after years of decline. Earlier this year they increased the number of teams working on IR35 from three to four, so we’re no doubt going to see these numbers continue to rise.’