We are hearing plenty about IR35 reforms just at the moment and that comes as no surprise.
Many different individuals and organisations are having their say on what they think about the changes. This is evidently a contentious issue as IR35 affects a huge number of businesses and contractors across the whole of the UK. It is provoking many different kinds of responses, although on the whole these are less than positive.
Well, now the Institute of Chartered Accountants in England and Wales (ICAEW) have for the first time published publicly their recommendations to the government. These are recommendations that they sent to the inquiry launched by the Public Accounts Committee back in February 2022.
The Key Points ICAEW's Response
They specifically call out the reforms that stem from 2017 to be nothing but a sticking plaster. They note that it does not “address the root cause of the off-payroll working problem.” The ICAEW have come to the crux of what many others also feel.
That the new system is not one that is fit for purpose. In fact, they feel that this is a very light and temporary solution to a problem that needs more attention. They say that the issue of off-payroll working is a problem that only continues.
They put this down to the advantages of tax and national insurance contributions, especially the cost of employer national insurance contributions. They note that this issue has no solution under current IR35 reforms. The ICAEW do put forward a suggestion for how this issue could be resolved.
They support closer alignment of total tax and national insurance contributions for workers both inside and outside of IR35. They feel that if these costs did not depend upon the nature of employment, then it would reduce the issues. More specifically they support debate around the way that the tax system sees employment and self-employment.
They note that the current attempts to classify different sets of workers such as gig workers into either employed or self-employed categories is not sustainable. They call for a rethink of the whole system. This is to take time to come up with a long-term solution to encompass all different types of workers properly.
This is an interesting way to approach the issue that clearly surrounds IR35. This may not be a welcome approach by all of those working outside IR35. However, there is clearly an issue with many contractors being wrongly categorised.
Organisations do seem to be taking different approaches to the problem from demanding that contractors choose from just a limited suppliers list of expensive umbrella companies, to blanket categorising everyone inside IR35 whatever their status. Whether or not you agree with the approach the ICAEW have put forward, what can be said is that a discussion about the future of IR35 reforms will be welcome.
The ICAEW do put forward a number of other suggestions that are well worth a read. Whether the Public Accounts Committee have done so though will be a question that still needs answering for now.
Will you pass an HMRC IR35 enquiry?
Take our 5 minute online IR35 risk assessment to find out
HMRC’s soft landing period has ended and IR35 enquiries will soon begin in the private sector. Make sure you identify any risk areas and ensure you’re managing it correctly.