Delay IR35 in the private sector, says ICAEW

The Institute of Chartered Accountants in England and Wales (ICAEW) has called on the Government to delay new off-payroll working rules in the private sector with fears that the regulations are not fit for purpose.

The leading accountancy body said the rules, which have already been introduced to the public sector, are “beset with problems” and need addressing before implementing in the large and complex private sector.

Off-payroll working rules, known as IR35, are in place to ensure that, where an individual would have been an employee if they were providing their services directly, they pay the same tax and national insurance contributions as an employee.

Currently, this primarily affects freelancers, contractors and subcontractors working in the public sector, for example, the NHS or the BBC.

But recently the Government has considered extending the rules to the private sector because research has revealed that in the majority of private sector cases the IR35 rules are not applied correctly.

The ICAEW argues, however, that the time is not right to introduce the complex off-payroll working rules into the “much larger” private sector – particularly with the introduction of Making Tax Digital looming next year.

Recent research shows that off-payroll working rules have had a significant effect on the public sector, with 25 per cent of NHS departments losing half of their flexible staff and 71 per cent of public sector projects being cancelled or delayed as a result of flexible talent leaving.

Sarah Ghaffari, ICAEW technical tax manager, said the current system is “not sustainable with today’s working practices”.

“The changes to the public sector in 2017 have been beset by problems and these need addressing before any change is made to the private sector,” she said.

The accounting body suggested that off-payroll working in the private and public sectors should be taxed in the same way, but called for the Government to address the tax and benefits differences between types of work before going ahead with making significant changes to the rules.