The Institute of Chartered Accountants in England and Wales (ICAEW) has called on the government to hold back on the extension of IR35 to the private sector.
Established by royal charter in 1880, the ICAEW has over 150,000 members and is a significant voice speaking up on an issue of great concern to many in the flexible employment sector.
Asking for a delay in the proposed roll-out, the ICAEW has cited the complexity of the situation and drawn attention to the way in which flexible workers are taxed.
IR35 is the tax legislation that came into force in April 2017 and which places the responsibility for determining employment status on the engager as opposed to the worker themselves. At the present time, it only applies to those carrying out public sector contracts but the new proposals will see it affect the private sector too.
The ICAEW commented: “While there should be just one system for all, the complex system is not yet ready to be launched onto the much larger private sector.”
IR35 and PAYE
Although flexible workers who use a PAYE umbrella company are unlikely to be negatively affected by IR35, the situation is still complex. The new system was originally designed to hit those who were deliberately avoiding the payment of PAYE by appearing to be non-employees.
When a contract is closer to employment than self-employment, the worker is expected to pay tax through a payroll operated by the payer and this applies even if they are using their own personal service company.
Andrew Brookes, head of employer solutions at Menzies LLP, explains that the difference in taxes and NICs between a contract outside of IR35 and one subject to PAYE can amount to a considerable sum when expenses are taken into account.
Determining employment status became an issue when IR35 was introduced as real world situations were often difficult to fit within the new rules. HMRC created an online tool called check employment status for tax (CEST) although this has come under fire for failing to include mutuality of obligation (MOO) in its calculations.
ICAEW technical tax manager, Sarah Ghaffari, called the proposed changes to the taxation of off-payroll workers “a good opportunity” to make sure individuals performing the same work are then taxed in the same way. She pointed out that at the moment there is a disparity between total tax paid by the self-employed and employees which needs to be looked at.
“When considering these changes, a holistic approach needs to be taken. Any solution for tax and national insurance should align with solutions for employment status. The current system is not sustainable with today’s modern working practices,” Ghaffari said.