IR35 – how important is it to HMRC?

For many contractors, quite rightly, IR35 is at the centre of their regulatory concerns.

However, a recent freedom of information request to HMRC, by an umbrella company, showed that they do not even hold any data relating to:


  • The number of companies or individuals identified as 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.

Despite the fact that this data is seemingly not kept, reviews of previous FOI requests showed that the number of reviews peaked in 2003/04, with 1,166 opened, before steadily declining to only 12 in 2009/10. In 2011/12 this increased to 59 and between April and November 2012 193 reviews were opened, though it is not confirmed that any of these have been successful yet. The amount of tax yielded for 2010/11 was £219k and this rose to £1.25m for 2011/12. Contractor Calculator has reported that it has secured agreement from HMRC that it will disclose figures around the effectiveness of IR35 over the last 18 months, by the end of November.

All in all, the above is not an especially ground-breaking record. However, with the number of HMRC teams dedicated to IR35 recently increased to four, the outcry around personal service companies used in public bodies, including notably the BBC, and the corresponding announcement of the formation of a Select Committee to examine the impact, good and bad, of personal service companies for tax collection, it seems clear that much more activity in relation to IR35 and its application can be expected. Despite the relatively low numbers of IR35 cases up to this year, it seems reasonable to expect this could increase during 2014.

Posted by John Hoskin