Peers have called on HMRC to do more to show that revenue protection provided by IR35 outweighs the cost of the legislation, after a four-month inquiry found that the regime can arouse “considerable hostility” among contractors. Stressing that the present structure of small business taxes provides an incentive for incorporation, the House of Lords personal services companies committee said the government should consider combining income tax and national insurance contributions.
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”.