Insidious IR35 doubling its yield is an indictment Lord Bridges is right to call out

There was quite a bit going on for contractors last week but not-to-be missed, just after Spring Budget 2023, Lords Bridges of Headley stated that IR35 reform has generated £1.5billion for the Treasury each year. The Conservative peer observed that it’s a yield figure “which is double” that of previous estimates of how much the off-payroll rules would generate for the exchequer, writes Seb Maley, CEO of IR35 contract review firm Qdos.

An insidious policy...

This bold and arresting update on the yield of IR35 reform was made in parliament, when Lord Bridges shared his view, not only of IR35 – an “insidious policy” from HMRC, he said, but also of the chancellor’s March 15th package. 

As far as I’m concerned, that the IR35 off-payroll framework has yielded twice as much as the government previously estimated, is a damning indictment of these rules.

It’s no secret that the introduction of IR35 reform in the public and private sectors saw many contractors unfairly forced onto the payroll of clients. That it has apparently earned the government twice as much as predicted -- often at the expense of limited company contractors who were already compliant with IR35 -- puts into perspective the flaws of this ill thought-out reform.

Assuming Lord Bridges is correct, the off-payroll yield for HMRC is £6billion

What’s more, having had a quick look at the 2018 Budget document, where the average yield projected across the initial four consecutive years of IR35 reform was £780million, Lord Bridges being right about the money means that the total which HMRC will rake in from the off-payroll rules between the tax years inclusive of 2021-24, is a whopping £6billion.

HMRC will be over the moon, whatever the true IR35 yield figure ends up coming in as. The tax office has always measured increasing tax receipts as a sign that IR35 compliance has improved. But in many cases, this simply doesn’t ring true. 

As contractors will know all too well, the changes to IR35 left many independent workers with no option but to operate on the payroll simply to keep their contracts -- irrespective of whether they actually belonged inside or outside the legislation.

A respected political inquisitor has had his say

Lord Bridges has often made his feelings clear about IR35. As the chair of the Economic Affairs Committee, he has led inquiries into IR35. Scathing inquiries, too.

Last February, he criticised the government and the off-payroll working rules for pushing contractors into the unregulated umbrella industry, where “rogue” tax avoidance promoters operate.  The Conservative peer has previously alluded to the importance of aligning employment status with employment rights, describing it as “unfair” that contractors operating inside IR35 are taxed as employees but do not receive any employment rights in exchange.

So, what -- if anything -- may come from Lord Bridges’ latest comments in parliament, in relation to “insidious” IR35?

It remains to be seen. But what’s clear, right now, is that these comments by a respected political inquisitor of the taxman’s IR35 policy are the latest in a long line of valid arguments trouncing this flawed framework which, disconcertingly, policymakers refuse to acknowledge.