HMRC has published their report on the IR35 cost to the government.

In summary the report states that continuing with the IR35 regime is more cost efficient than trying to get it abolished. The administrative cost to the public in continuing with this practice is £16 million, whilst abolishing it would cost the Exchequer £550 million per year.

The legislation which has been the source of various controversies is designed to prevent people from lowering their tax bill by not being directly employed.

Jason Piper who is the ACCA’s tax technical manager and sits on the HMRC’s IR35 Forum responded to the figures on the report:

“Figures cover the cost to taxpayers of assessing whether or not the complex and often controversial measure affects them directly but what it can’t address is the wider costs to other businesses in the chain of the IR35 compliance process. Agencies and end users will often face an administrative burden of replying to the taxpayer’s requests, while the contractor themselves will often be in limbo until that information is forthcoming.”

“The wider costs of IR35 are beyond what HMRC has the remit or resources to reasonably investigate but it’s clear that the policy making process needs to address that wider drag on the economy. Government has clearly identified a risk that it wants to address, but it’s important to make sure that the mechanisms used are the best that we can craft. That may mean devoting more time and resource to the underlying design, but that initial spend will be more than repaid in efficiencies further down the line.”

Piper stated the interaction issues regarding the IR35 cost and how it is interlinked to the society we live in.

“We live in a linked up society, and that’s part of the world of business. It’s important that the tax system which supports that society is designed to deliver maximum net benefits. That means striking a balance between the simplicity of mechanistic tests and the certainty of a detailed case-by-case analysis.”

“HMRC have made a concerted effort to improve their administration of IR35, but while the fundamental design creates such a difficult compliance model that can only ever take us so far. With the public spotlight so firmly fixed on tax at the moment, now is the perfect time for policy designers and administrators to get their heads together and try to address some of the underlying structural features which, despite everyone’s best efforts, can make tax feel so taxing.”