The Institute of Chartered Accountants in England and Wales (ICEAW) has said that difficulties in implementing IR35 reforms introduced in 2017 (public sector) and 2021 (private sector) highlight how “fundamental problems” remain in the way work is taxed.
The ICEAW’s Tax Faculty claims that issues with off-payroll working can only be permanently resolved through the restriction or removal of incentives to arbitrage self-employed or employed tax and National Insurance.
According to the Tax Faculty, this could be achieved if the tax and National Insurance Contributions (NICs) paid by workers and the businesses and organisations that engage them were either more closely aligned or brought level. It asserts that NICs and tax should not vary according to employment status or the type of employment.
The ICEAW believes that there should be an “informed national debate” exploring whether genuinely self-employed workers should pay reduced tax and NICs and, if so, what the scale of the reduction should be. It notes that, despite wider employment rights reforms over recent years, consideration has not been given to reforming tax.
The institute adds that it is unsustainable that there are multiple classifications for employment law, but two (self-employed or employed) for tax and NIC. It says that recent high-profile Court of Appeal IR35 cases show the difficulty of determining employment status and highlight the need for a “long-term rethink”.
The Tax Faculty says that, although the reforms needed would be fundamental and potentially complex, the issue must be “considered holistically through informed discussion”, otherwise reforms such as IR35 will continue to put costly burdens on businesses, while not fully addressing the underlying problem.
In closing, the Tax Faculty said that it trusted the recently announced government review into the Future of Work, which will be headed by Matt Warman MP, “will seize the opportunity to consider how to resolve these fundamental problems.”
