The yearly yield from investigating contractors under IR35 regulations has fallen drastically from £1.1m to £430,000 between 2011 and 2014, with the number of enquiries also falling significantly from the year prior. On average, the total cost per enquiry has been falling year on year, with a significant drop in ROI from 2011 onwards. Why?
The fast IR35 tax contribution’s fallen
Average return per IR35 enquiry has fallen at faster rate than even the most anti-IR35 sceptic could ever have envisaged. Indeed, in the year 2011-12 the average return stood at £52,173 but a year later that figure had plummeted to £4,296, falling even further to £2,239 in 2013-14.
So not only has the average return declined hugely over the last three years, the total reclaimed per enquiry last year stood at a lowly £2,200. Whilst this money is what was gained back, there is no indication as to whether or not this was a profit, as the figures showing the amount spent per enquiry have not been made available.
The Goverament’s considerations
In reality, IR35 has never been as profitable or as successful as it was initially planned, although MP David Gauke – is the current Financial Secretary to the Treasury – specified that: ‘’In addition to the tax voluntarily paid through IR35, and the compliance revenue, the cost to the Exchequer of not having […] IR35 […] would be around £520m a year’’ – despite the fact that this figure is more than 17 times its (total) yield.
Huge numbers of companies have been calling for IR35 to be reconsidered for years. The regulation was expected to bring in £220m per year at its induction in 1999, but the highest it has ever reached was 1% of that, at £2.3m.
As it stands, we have a prohibitively expensive piece of legislation that is almost impossible to enforce efficiently. Businesses unanimously claim it as a ‘sledgehammer approach’, so maybe the time has come to reassess the validity of IR35.
Whilst on the one hand, it certainly achieves its goal of protecting agency workers from being taken advantage of, there is an inherent downside. It creates an inflexible, highly regulated work environment – an environment that by its very nature requires workers to be flexible.
Along with over 13 years experience in the contractor payroll industry, and after spending most of his working life as a financial advisor in the regulated financial services industry, Mike has garnered an extensive network of contacts in the recruitment industry, many of whom trust both him and the One Click Group to handle their accounting. Mike has also been a member of various industry bodies throughout the years, such as the British Institute of Recruiters, in order to champion best practices across the contractor payroll industry.