Lobby group the Professional Contractors' Group (PCG) has urged the government to scrap its controversial freelance tax rule, IR35, after it was revealed the regulation adds a paltry £1.5m each year to Treasury coffers.

The PCG used Freedom of Information rules to uncover that IR35 had raised just £9.2m in tax for the years 2002/3 to 2007/8. Initially the government had expected to raise £220m annually through the rules.

“IR35 makes very little money for the government, and given the cost of enforcing it, and the number of failed investigations for HM Revenue and Customs (HMRC), it may even cost more to implement than it actually brings in," said John Brazier, managing director of the PCG.

"IR35 restricts the flexibility of the labour market and is difficult to enforce. It should be abolished at the earliest opportunity."

IR35 was introduced to counter tax avoidance through the use of so-called personal service companies, where the government claimed that freelancers working on long-term contracts for one company should effectively be treated as if they were permanent employees for tax purposes.

But opponents have consistently argued that the rules unfairly penalise freelance workers, and result in them paying more tax than permanent salaried employees.

The PGC claims that of the 1,468 IR35 investigations it has been involved in, HMRC proved additional tax was owed only six times.