The government should act to change the rules governing the tax status of contractors, the Institute of Directors (IoD) has said.
The call came in the IoD’s submission to the Office of Tax Simplification which has been briefed by the government to come up with proposals for streamlining the tax system.
The IoD described the IR35 rules as imposing “a burden out of all proportion to their effectiveness” and argued that failure to reform them, except for extremely good reasons, would “indicate that the government is not fully committed to tax simplification”.
The IR35 regime was introduced in 2000 as a way of tackling the issue of disguised employment. That is, people who claim to be an independent business but are performing the same duties for a firm as full-time employees in order to gain a tax advantage.
Much criticism has been made of the system for the heavy compliance burden it imposes for what is only a very small return for HM Revenue and Customs.
In the view of the IoD, the rules should be made more defined and precise, with perhaps a test set up to remove as many businesses as possible from its application.
The Office of Tax Simplification is due to file its proposals ahead of next year’s Budget.