New data recently released by HM Revenue & Customs (HMRC) has shown that annual yield from IR35 enquiries has fallen by a significant percentage. Despite the dramatic dip in yield, the number of investigations has only fallen by a relatively small number.
Yield from IR35 investigations in 2012-13 was £1.1 million, while in 2013-14 the amount secured by HMRC was just £430,000. The number of investigations had fallen to 192 in 2013-14, in 
comparison with 256 in 2012-13. The data, which was given to Scottish Labour MP Pamela Nash, indicated a 61 per cent drop in yield. The information was obtained under the Freedom of Information Act.
The yield for 2013-14 is the lowest in three years; in fact, the only year when the yield was lower was in 2010-11, when it was just £220,000. The House of Lords was initially informed that the risk of IR35 to the exchequer was £475 million. The figure was then increased to £550 million, and now the same figure is being quoted by a Treasury Minister, minus the £30 million secured as a direct result of IR35. According to MP David Gauke, the cost for the Exchequer of no IR35 would be about £520 million a year.
The drop in yield, despite a smaller reduction in the number of enquiries, was discussed at the IR35 Forum, although discussion surrounded all tax years rather than just 2013-14.
What is IR35?
IR35 is legislation introduced in April 2000 to prevent contractors working as disguised employees. For instance, an individual could resign from their permanent job on a Friday and return to work on Monday carrying out the same duties as a contractor working through their own limited company. By doing this, they avoid payment of PAYE and can take payment from the company as dividends, which aren’t liable to National Insurance contributions.
Caught by IR35 or not?
If HMRC deems a contractor to be performing the same duties as an employee, they will be caught by IR35 and will have to abide by the rules of PAYE just like an employee. HMRC can raise assessments for previous years if officers believe a contractor was within IR35, plus add penalties and interest charges.