The government’s attempt to deflect criticism of senior civil servants using personal services companies to avoid tax symbolises why the UK tax system is so chronically complex.
“As if IR35 is not complicated enough, they need to introduce another layer of complexity to deal with controlling persons,” said ICAEW Tax Faculty chairman David Heaton at the Wyman symposium on tax simplification on Wednesday night (18 July).
Heaton, a tax partner with Baker Tilly who specialises in employment, explained that similar rules were rejected when IR35 was first proposed back in 1999, “But I doubt anyone’s still around from then,” he said.
Personal services companies exist because clients don’t want to take on the extra risks of hiring employees or run the risk of status enquiries. And the differential treatment of dividends and earnings only served to encourage the practice. Instead, Heaton argued that a lot of the problems IR35 is designed to deal with would go away if dividends in close companies were taxed at a higher rate.
“Higher NICs would discourage people from forming limited companies,” he said. “Then you could repeal IR35 and drop this controlling persons nonsense.”
Logged-in AccountingWEB members can see a full round up of the Wyman symposium debate covering:
- Is it possible to achieve simplification?
- Speech highlights from Robert Maas and John Whiting
- Simplification manifesto