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The controversial tax which was introduced by Gordon Brown shortly after he became Chancellor has proven to cost far more to administer than the cash it has raised.

Gordon Brown has long had the typical socialist view of business owners which sees them all as crooks only concerned with paying as little tax as possible. Tax that he wants so he can spend (waste) it on grandiose social engineering schemes and benefit handouts, mostly designed to buy votes for the Labour party and bind the citizens more firmly to the state machine.

The fact that it is a well established legal right for a taxpayer to arrange their affairs in such a way as to pay as little tax as possible really infuriates Gordon and his other socialist friends. They see this as something to be stamped out (unless of course you are a member of parliament when you get tax breaks that no-one else can get).

So Gordon was not happy when he realised that many contractors, mainly in IT but also in other professions, were carrying out their business activities as limited companies rather than as employees or self-employed individuals. This allowed them to reduce their tax and national insurance payments and was perfectly legal. Gordon considered such activities to be “disguised employee” arrangements, which reduced tax and national insurance payment of supposed freelancers by 25 per cent. So he introduced IR35 (see here for more information) as a way of collecting more tax.

The introduction of the tax caused uproar among UK contractors who operated alone as one-person companies or as two-person companies in partnership with wives or husbands. The IR35 scheme is complex and complicated, full of anomalies and unintended consequences. As soon as HMRC started to take action against contractors it felt should be paying more tax it found taxpayers unwilling to take it lying down – and the result has been countless court cases – which HMRC have almost always lost.

By the way, isn’t it interesting to note how many pieces of legislation that this government have placed on the statute book to deal with perceived problems, be they tax, terrorism or whatever, have ended up being thrown out by the Courts – either British or EU. Often because of Human Rights legislation? Gordon must wish his government had never introduce the Human Rights Act.

He probably also wishes that Labour hadn’t introduced the Freedom of Information Act either. Without that we would still not know about MPs expenses: all the claims for second homes for MPs or even for ducks, would still be secret!

Now he has another reason to regret the Freedom of Information Act because that law has been used by the Professional Contractors Group to force the Treasury to reveal how much extra money has been raised by IR35. Remember Mr Brown reckoned that contractors using companies were saving 25% so you would think the extra tax must amount to rather a lot. Gordon did his sums back in 2000 and came up with a figure of £220 million in national insurance contributions alone.

Well in fact the extra cash raised by tax and national insurance combined has averaged just £1.5 million (yes million, not billion) a year.

As yet we haven’t been told what it has cost to collect this extra money but given that there have been several thousand investigations and court cases since the tax was introduced I strongly suspect the annual cost was far higher than £1.5 million a year.

All the cases being fought in the High Court and at the Special and General Commissioners over IR35 have just been a monumental waste of time and of money.

This isn’t a one-off situation. HMRC have spent £1 Billion on tackling what Gordon calls “unacceptable tax avoidance” and I just wonder what they have got back in tax for that amount of expenditure.

But of course, this isn’t really about maximising the tax revenue – it is all about making a political gesture designed to appeal to the traditional Labour and socialist voters. But what a waste of taxpayers money.

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Category: Taxation

6 Responses to “What Was the Point of IR35?”

  1. Taggie says:

    edwater: no-one will take you up on that bet.

  2. edwater says:

    Cameron promised a referendum on the Lisbon Treaty but bottled out. What’s the betting he’ll quietly forget about IR35?

  3. jostmeen9 says:

    I’m told that the Tories have said they will scrap IR35. Anyone believes them?

  4. George says:

    Does anyone really believe that IR 35 will be repealed?

  5. Paul_76 says:

    IR35 is and was a total con and as you say was more of a political gesture than anything else. The Tories say they will cut costs so if the scrap IR35 not only will they get loads of votes they will save money. Bring on the election.

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