The Institute of Chartered Accountants of England and Wales (ICAEW) has asked the Government to delay extending the controversial IR35 reforms to the private sector.
The Government had introduced the off-payroll working rules in 2000. In April 2017, reforms were introduced in the public sector that shifted the responsibility of determining employment tax status to the contracting agencies.
Despite great criticisms about the IR35 reform, the Government had decided to extend the rules to the private sector in 2019.
However, due to the irregularities regarding the proposed IR35 reforms, the ICAEW has called for the reforms to be postponed until 2020.
Reasons for Postponement of IR35 Reforms
The private sector is not ready for the launch of the much complex taxation system, according to ICAEW.
As per Sarah Ghaffari, the technical tax manager at the chartered accounting body, private businesses in the UK already have a lot on their plates. They are already burdened by the process changes to bring their systems in line with ‘Making Tax Digital’ scheme of HMRC. In addition, they have to deal with the uncertainty surrounding the Brexit impact. In this context, the additional responsibility of determining the IR35 tax status of contractors will lead to further problems.
Ghaffari had stated that the current problems with the IR35 reform need to be addressed before extending it to the public sector. A ‘holistic’ approach is required to solve the problems relating to reform.
ICAEW recommends that the taxation of off-payroll working contractors should be the same for private and public sectors. Both need to be taxed in a similar manner. This would remove any confusion for employers regarding the status of work. Also, the Government needs to address the difference in tax and benefits between the different types of work.
Britain Facing Shortage of Skilled Workers
A research published last year had revealed that the public sector is losing top talent due to reforms in the IR35 sector. Nearly, 71 percent of public sector projects have been delayed or cancelled due to lack of skilled workers.
NHS has suffered badly due to the IR35 reform. Nearly 25 percent of departments have lost half of the flexible staff.
The Government needs to consider the advice of ICAEW and other agencies that have advised against the proposed IR35 extension next year. Extending the reform would have a negative impact on the UK economy resulting in reduced instead of increased tax revenues.