FOI request highlights gaps in HMRC’s IR35 data

A FREEDOM OF INFORMATION REQUEST made to HM Revenue & Customs has found the department does not hold key pieces of information relating to the IR35 rule.

The rule, introduced in 2000, is designed to prevent people engaged through personal service companies (PSCs) from paying less tax than if they were directly employed.

There has been public and political anger after it was revealed 2,000 senior office holders of public bodies were revealed to be receiving payment off-payroll, while the BBC revealed in September 2012 that 148 of its 467 presenters were engaged in the same fashion.

Responding to a request from the Pulse Umbrella Group, HMRC said it does not hold any information relating to the number of companies or individuals identified as possible targets for investigation since 2001; the total cost of investigations since 2001; how many of the investigated individuals paid immediately; how many of the investigated individuals entered a time to pay deal with HMRC; how many of the investigations resulted in the seizure of property to settle debts or other enforcement, or; how many investigations were settled early and what discount settlements were received on the alleged total amount owed.

While HMRC is able to provide figures for the number of reviews they opened from April 2000 to 2011 and the tax yield received from these, they withheld the most recent figures. They cited the fact that, under the FOI Act, they are able to withhold information if they have an intention to publish at the time of receiving the request, consider it reasonable to withhold the information until the planned publication date and it is not in the public interest to disclose the information. For the same reason they also withheld the information on how many investigations resulted in a successful outcome.

Chief executive of Pulse Umbrella Group Chris Futcher said: “Genuine contractors are being let down by HMRC on IR35. The amount of information HMRC is failing to collect on IR35 does raise a lot of questions about the business case for it. No one really seems to know the impact it’s having, yet contractors are tying themselves up in knots trying to comply with 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.”

HMRC said in a statement: “There are many legitimate reasons for someone to use a personal service company, however they can also be used for tax avoidance. In these cases, IR35 may apply and HMRC will seek to challenge them. Where we think there is a risk of tax loss as a result of people not applying the rules properly, we move our resources to tackle it.

“We have been working closely with stakeholders and representative bodies over the past three years to improve our administration of IR35. This includes ensuring low risk cases are closed quickly, and improving our guidance to give contractors greater certainty about their risk of IR35. We provide a free confidential helpline for those who have questions, supporting them to make sure they are operating within the rules.”