The tax yield from IR35 is set to reach £1.5bn per year – double the previous Office of Budget Responsibility (OBR) estimate.
IR35 tax receipts set to double
On the 16th March, Lord Bridges of Headley, Chair of the Economic Affairs Committee made a statement while noting that the UK’s tax burden is to reach a post-war high:
… There is also the impact of IR35, that insidious policy that the Finance Bill Sub-Committee of this House has focused on. The yield on that has grown to £1.5 billion per year, which is double previous estimates.
Off payroll public sector rollout has boosted tax take
This news comes just under two years since the implementation of the off payroll reforms across the private sector.
Prior to these reforms, contractor companies would self-certify their IR35 status, now this onus falls on clients instead.
As a result, many clients have opted to blanket ban limited company contractors rather than take on the risk of mis-categorising their employment status.
This has led to an increase in umbrella company working, and higher employers’ NIC and PAYE receipts.
Off payroll repeal hopes quashed
Contractors’ hopes were raised, albeit briefly, when the then-Chancellor Kwasi Kwarteng announced the repeal of the off payroll rules in his ill-fated September 2022 Budget.
The current Chancellor, Jeremy Hunt, then canned the repeal in his October 2022 statement.
What do industry experts make of this news?
We asked Seb Maley, CEO of tax status experts, Qdos, for his reaction to the news:
Do you think that the £1.5bn number is accurate? And how much of this is probably raised from other Government departments?
“It certainly sounds believable. If you factor in the £250m or so of IR35-related bills that various government departments have received plus the number of contractors wrongly forced onto the payroll as a direct result of IR35 reform, it seems very plausible.”
Given the vast amount of tax being generated, doesn’t this make any potential rollback or repeal of the off-payroll rules even more unlikely?
“As far as the government is concerned, the off-payroll working rules are working as intended. However, increased tax revenue isn’t always a sign of compliance. And where IR35 is concerned, the £1.5bn in tax generated in the past year demonstrates just how many contractors have been left with no choice but to pay tax as an employee irrespective of their true IR35 status.”
Dave Chaplin, CEO of IR35 Shield, said:
“The most anti-conservative measure released in years”
The original estimates by HMRC were that one-third of the contractor workforce should be paying IR35 taxes. So, if they are collecting twice as much, it means one-third of the contractors are being misclassified and having their rights to be their own boss taken away from them.
It’s the most anti-conservative measure released in years. The Tories need to fix this issue quickly, or else they will lose the self-employed vote.