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Off-payroll working: firms spending 74 times HMRC’s estimated cost

HMRC estimated off-payroll costs to businesses and contractors are seriously out of kilter, says IR35 expert/Photo by Andrea Piacquadio
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OPINION

HMRC has just released its own research into the impact of Off-payroll working. The report follows externally commissioned work that came out in the same week. Dave Chaplin, CEO and founder of tax compliance firm IR35 Shield says the numbers don’t add up

By Dave Chaplin

HMRC has published the results of its own findings into Off-payroll working – it seems to me that more research in pursuit of justifying the punitive Off-payroll legislation is a desperate task by HMRC and smacks of the lady doth protest too much.

HMRC claims the reform has generated an additional £1.8bn between October 2019 and March 2022.  The impact statement indicated that in the first year, post-implementation, the legislation would command £1.165bn – therefore, it has made £700m.  How does that add up when fewer people were apparently affected by it?

Moreover, many of the stats do not seem to tally with the externally commissioned report. The impact statement was miles out in terms of costs.   The original impact statement suggested that the number of workers affected was 170,000.  Now, HMRC claims it is 130,000.

In addition, HMRC claims the reform has generated an additional £1.8bn between October 2019 and March 2022.  The impact statement indicated that in the first year, post-implementation, the legislation would command £1.165bn – therefore, it has made £700m.  How does that add up when fewer people were apparently affected by it?

Firms are spending 74 times HMRC’s estimated cost to run Off-payroll

HMRC estimates that client organisations have incurred an overall one-off cost of £90 million to £230 million to implement the reform. Clients have also spent a further £150 million to £370 million in the first year on operating the rules, which HMRC expects to diminish over time.  There are around 40,000 medium or large client organisations in the UK. HMRC’s impact statement estimated total costs for firms to be £14.4m.

I would suggest that HMRC was out by either 6-fold or 16-fold. Either way, HMRC was miles out. Firms are spending 74 times HMRC’s estimated cost to run Off-payroll.  And, the report suggests that HMRC is blaming hirers for spending, in its view, too much money on IR35 compliance! This is an appalling attempt by HMRC to spare their own blushes at getting the impact numbers so wildly wrong.  It is high-time HMRC admitted that Off-payroll working is simply not!


IR35 history repeating itself and not in a good way

In 2014 a House of Lords select committee looked at PSC/IR35 and in their response report, point 2.21 (Page 5), the Chancellor of the Exchequer at the time George Osborne stated: “We acknowledge that businesses would generally resist being made responsible for IR35 assessment, finding the additional administrative pressure and liability as overly burdensome.”

My response at the time to HMRC’s main report was, notably in reference to point 74: “It does seem somewhat wasteful having industry experts and HMRC standing around a dead horse discussing how they can make it win the race. It’s a non-runner, and has been since inception.”

My response today: “We learnt recently that reducing frictionless trade due to Brexit has cost the UK economy. IR35 is the same. It introduces friction into the flexible workforce, and is bad for the economy.”

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