Having identified that small business taxes act as an incentive for incorporation, the House of Lords personal services companies (PSC) committee said the government should consider combining income tax and national insurance contributions. Andrew Goodall reports.
The IR35 rules are intended to ensure that people providing services through intermediaries pay the same income tax and NICs as someone employed directly, if their arrangements amount to “disguised employment”.
But IR35 raises its own problems, said committee chairman Baroness Noakes at the end of an inquiry that began with a leading expert describing the regime’s contract-by-contract approach as “innately clumsy”. That approach can make the rules “especially cumbersome”, the committee said, and compliance requires “a sound understanding of case law”.
Many individuals “simply take a risk” that HMRC will not examine their employment status – an attitude that was “fostered” by a decreasing number of compliance investigations. Guidance for those affected “must be improved” if IR35 is to be maintained, the committee said.
Concluding a four-month investigation, today’s report found...