Did IR35 really generate £4.2bn in extra taxes?
A recent government report on IR35 revealed that £4.2bn in extra tax was generated since the reforms, but experts have warned that the impact “has been continually downplayed.”
The off-payroll working rules (IR35) refer to legislation designed to ensure that workers who are essentially employees pay the same income tax and National Insurance contributions as direct employees.
Since the reform in 2021, several high-profile cases, including those against notable sports presenters, have made headlines as HMRC has worked to collect the tax it is owed.
The new report estimated that 120,000 contractors were affected by the reform, but overall, more of these workers were unaffected than affected.
While those affected by this law pay, on average, £10,000 a year more in tax, the government noted this does not necessarily mean that post-tax take-home pay fell as “some individuals have reported an increase in pre-tax incomes”.
However, commenting on the report, Qdos CEO Seb Maley stated: “There are some bold claims in this report.”
He pointed out that: “These rules created confusion, uncertainty and damage to the contracting landscape. Many businesses stopped engaging contractors as a direct result of the reforms.”
“The truth is, it’s taken years for firms to get to grips with the rules – something we are seeing gradually, but there’s still some way to go,” he added.
While Dave Chaplin, CEO of IR35 Shield noted: “For those hoping that the IR35 reforms will be repealed, there are 4.2bn reasons why that is not going to happen.”
He went on to state: “The self-employed have consistently proven to be the backbone of our economy, particularly during uncertain times, providing businesses with workforce agility and specialised skills that drive innovation across all sectors.”
“However, the [IR35] rules have created a hostile environment for genuine contractors and the businesses that need their expertise – exactly the opposite of what our economy needs.”
“If our Labour government truly wants to grow the economy, they should start by supporting people who want to be their own boss so they can help UK plc to thrive,” he added.
While addressing the £4.2bn figure the government revealed, Maley stated it is important to note that it “doesn’t necessarily equate to increased levels of compliance.”
“Far too often, contractors have been placed on the payroll or inside IR35 despite being clearly self-employed. This increases the government’s tax take,” he explained.
Just back in January, former Manchester United captain Bryan Robson lost a chunk of his IR35 tax case against HMRC after he found to be an ‘employee’ in his ambassadorial role at his former club.