IR35 advisers have said that government forecasts that the delay to private sector IR35 legislation cost the Treasury £740 million are merely estimates.
Advisory firm Qdos believes that the money forfeited by the exchequer in delaying the new rules may explain the lack of COVID-19 support for contractors and says that the government’s previous IR35 projections mean that the £740 million figure shouldn’t be taken as an accurate forecast.
Qdos CEO Seb Maley says: “As we all know, the government believes that IR35 non-compliance is widespread.”
Maley asserts that the government believes “as many as nine in 10 contractors who ought to be working inside IR35 are currently operating outside the scope of the legislation. But in our experience most contractors carry out their due diligence and ensure they are working compliantly with regards to IR35.”
Fellow advisory firm Bauer & Cottrell concurs, saying it doubts whether the government’s figures are “based on anything concrete.”
Bauer & Cottrell co-founder Kate Cottrell explains her doubts: “Not least because HMRC have claimed for many years that they did not actually know the size of the IR35-affected population. And I recall that HMRC had a very embarrassing time at the House of Lords, when they tried to defend their figures the last time.”
Regarding the forecast itself, Cottrell adds that: “HMRC’s statistics show that tax collected for April to October 2020 are £70.6billion lower than the same period in 2019. That was due to VAT of £38.7bn, income tax and NIC of £11bn, corporation tax of £11.9bn, and stamp duty taxes of £2.7bn.”
“It will be interesting to know if account was taken of such a dramatic fall when the four-year projected revenue loss of £740m was calculated.”
While ReLegal Consulting strikes a more accepting tone, saying the £740m figure is “maybe an anticipation of a reduced number of PSCs”, the firm’s owner Rebecca Seeley Harris says that there is little else that could account for the predicted loss.
Seeley Harris says: “When I was at the Office of Tax Simplification, we used to get our details from HMRC’s Knowledge, Analysis and Intelligence (KAI) directorate. But KAI uses some very dubious proxies to make these assumptions. Sometimes they might as well just stick their finger in the air.”
Discussing these proxies, a former tax inspector said that they were used to “over-sophisticate” the Treasury’s forecasting methods for its projections. The former official said that figures were “pure and simple guesswork, really meaningless.”
Orion Electrotech IR35 expert Peter Whipday says: “With HM Treasury looking to recoup the costs of various COVID-19 support schemes and other key spending this year, when faced with projected costs of further delaying the IR35 reforms, it is easy to assume we won’t likely see any deferment again, in April.”
Author: Steven English