Off Payroll IR35 Tax Income v Off Payroll Cost to UK Economy

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Outside IR35 Contracts for Contractors
Outside IR35 Contracts for Contractors

Off Payroll Tax Income for HMRC

Which is Greater – the amount of money that the Off Payroll Tax brings in for the Government, Treasury and HMRC or the amount of money lost by companies because of not being able to use the optimum permanent employee / contractor ratio which suits their business best?

Prior to the Off Payroll legislation companies knew what was the best ration of contractors to permanent employees they needed at their companies to run their businesses most efficiently.

Since the Government implemented the Off Payroll rules most large companies now use a different ratio of permanent staff to contractors.

That is because there are now financial penalties for companies who declare contractors outside IR35 when HMRC, with their dodgy online IR35 test, judges them to be inside IR35.

Optimum Ratio of Contractors to Employees

As companies used to have what they saw as the optimum ratio of contractors to permanent employees and now have a different ratio, forced upon them by the Government, it is highly unlikely that the new ratio will be just as optimum as the old ratio.

Therefore companies across the length and breadth of Britain are now operating in a way that is less efficient than the way they use to run their businesses – and as this applies to every major company throughout the land, UK businesses are now operating in a way that is less optimum than their rivals in other countries.

What Happens When Companies Act Less Efficiently Due to Off Payroll

This will result in less business coming their way. This will lead to lower profitability and less tax paid by companies. It will also lead to fewer people being employed by them, permanent staff or contractors who will then pay less tax.

It is always a lot easier to calculate the cost of something rather then the cost of not having it. For example it is easy to calculate the cost of an employee you are laying off than to calculate what the company is losing by not having that person any more.

The Costs of Getting Rid of Pat McArt, Inishowen Editor of Derry Journal

My local newspaper the Derry Journal used to do an Inishowen edition, Inishowen being part of Donegal and the Republic of Ireland.

They used to sell 320 of the Friday edition and 240 of the Tuesday edition just in my local shop in Inishowen.

A few years ago they decided to cut staff and one of the jobs to go was that of the guy who ran the Inishowen edition of the newspaper. They figured the Inishowen edition could be run over the border in Derry along with the rest of the paper.

Of course their people in Derry had no clue what was happening over the border in Inishowen.

Derry Journal Journal Selling a Lots Fewer Copies

I asked my local shop recently how many copies the Derry Journal was selling there now. The owner told me that from selling 560 combined a few years ago they would barely sell 40 combined now.

At the time the company knew how much they would save by making the Inishowen editor redundant. They now know the cost to them of making him redundant.

They new sell 520 newspapers less than they used to – just in that one shop. As it costs three Euros each that means that they have lost €1,560 a week just in that one shop. That’s €81,000 a year they have lost since they got rid of the Inishowen editor. That would be a good deal more than his annual salary.

Now this shop probably only accounted for maybe a tenth to a twentieth of the sales of the Derry Journal in Inishowen.

So this means lost sales of €800,000 to €1,600,000.

So, they saved maybe €60,000 a year by making the Inishowen editor redundant. They knew that at the time.

Now they know the cost of making him redundant.

Government and HMRC Know the Benefits But Not the Cost of Off Payroll

It’s the same with the Government, HMRC and the Off Payroll rules implemented in the private sector.

The Government and HMRC have told us that their new off payroll rules will be bringing in £1.5bn to £2bn a year in tax that they would not have got previously.

However, what they don’t tell us how much the country is losing by every major company up and down the land (and many smaller ones too) now operating less efficiently than they did before.

The Conservative Party were always the party who tried to stay out of the way of companies and left them to operate in the best manner they saw fit for their business.

Now they are interfering in just about every major business throughout the land and causing them to operate less efficiently.

The Costs of Off Payroll rules Will be Greater Than the Benefits

The money they get from Off Payroll is not a huge amount of money.

However, the amount of money that UK plc is losing by no longer being able to operate to the optimum is likely to be huge and a multiple of the tax money they bring in from off payroll.

What really needs to be done to destroy the arguments of the Government, Treasury and HMRC is for someone to do a Cost Benefit Analysis of the effects of the Off Payroll rules.

We already know how much the benefit to the Treasury will be at £1.5bn to £2bn.

But what is the cost to UK businesses, the Government and to contractors too?

Who Could Do Off Payroll Cost Benefit Analysis?

So, who could do this?

Someone would need to pay for this independent Cost Benefit Analysis.

Perhaps it could be commissioned by the CBI.

Perhap IPSE could do it.

Perhaps IPSE and the CBI could do it between them.

And then we could see the real cost of implementing the off payroll rules in the private sector compared to the money brought in on taxes by it.

I’m willing to bet that the costs to UK companies and the UK economy will be far, far more than the Government brings in.

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