ICAEW’s four point plan
Unlike the Chartered Institute of Taxation (CIOT), the Institute of Chartered Accountants in England and Wales (ICAEW) are of the opinion that passing the IR35 compliance burden on to the engager, in any way, is not practicable.
Last month the ICAEW published its responses to the IR35 discussion document, in ‘TAXREP 51/15’, which sets out four broad recommendations.
1. End clients should not be made liable
There are serious practical problems in moving the tax and NIC liability onto the engager. When the IR35 rules were first conceived and planned in 1999, this idea was rejected as unworkable. The ICAEW recommends that HMRC refers to its records of discussions at the time to remind themselves as to why such an idea was rejected, at the time, as being unworkable.
The Institute believes it would be impossible for an engager to calculate the correct, or even a fair, amount of PAYE and NIC on payments made to an intermediary as they would have insufficient information about the contractors ‘earnings’ and circumstances.
2. Hands off the legislation
No more changes should be made to the Intermediaries legislation, until recent and forthcoming changes have had a proper opportunity to bed in. These changes include the 2014 changes to supervision, direction and control (SDC) in relation to the Agency Legislation, the 2015 reporting obligations for employment intermediaries , and the 2016 dividend tax.
The Institute argues that the proposed restriction of travel and subsistence expenses and the introduction of the dividend tax next year should make the PSC markedly less attractive because the costs of setting up and running a company should not be matched by tax and NIC savings. A further adjustment to the dividend tax rate in the future could increase the deterrent effect.
3. Better policing
HMRC should properly police the existing legislation in a proportionate and fair way, and improve guidance. In particular it should tailor the Employment Status Indicator (ESI) tool for IR35 to help PSCs and their advisers make the right choices, and to reduce the workload for HMRC by providing an IT filter that is robust and binds HMRC when it indicates that IR35 should not apply.
The ESI tool currently does not cater for PSCs but is something I would favour. Predominantly used in the construction industry a contractor or worker answers a set of questions regarding aspects of employment status and an opinion is then generated. This opinion can then be relied upon provided the questions have been answered correctly.
4. Long term plan
Rather than trying to stick more patches on IR35 with added complexity, the Government should consider a long-term, more fundamental reform with a view to removing the differential liabilities that drive tax-motivated incorporation.
The Institute supports the Office of Tax Simplification’s suggestion made in their report on employment status last March, that there should be a joint review between HMRC, Treasury , Department for Work and Pensions and Department for Business, Innovation and Skills to look at the possibility of developing an agreed code of principles for employment status.
Aligning PAYE and NIC may also bring resolution to the IR35 conundrum.
Both these ideas are major projects but are a better alternative to using ‘sticking plasters’ “on a broken and misconceived approach that has caused business, advisers, Inland Revenue, DSS and HMRC problems since it was introduced.”
The full document can be found by CLICKING HERE
All fantastic and reasonable stuff, but the chance of any heed being paid by the misguided clots who bumble about the halls of HMRC and Whitehall, is near zero.
As a contractor who’s been contracting in IT for over 15 years, I have seen the role of IR35 shift so that HMRC can gather more revenue and in its current form requiring contractors to prove they are not under control by the end client, probably affects well over 85% of contractors. Its initial conception to prevent people leaving as permanent and joining as contractors was mainly done by unscrupulous Government departments trying to cut costs and pay workers less. It’s also easier to fire people. This then spread to private sector. Today we have a mobile workforce with no labour protection or very little compared to France. An international company would look at cutting costs in UK first.
Give HMRC legislation and they will write it to suit their own purpose. This was clear with the IR35 entity test which had every company falling under IR35. This nation needs to allow those taking risk to be compensated accordingly. We need to embrace success and celebrate wealth that follows success. We should be happy as a nation and allow people to grow wealthy. High taxes keeps people in a rut. What’s worse is seeing how much tax is taken, only to see it wasted by the Government.
I would have set min salary to be 40% of Revenue. The only people who want higher taxes are those on low wages and that don’t aspire to wealth or want anyone else to do so.
We need to revise IR35 towards the companies that sack or convert employees status from permanent to contracting.
With Government meddling in the contract industry, going back to permanent is now looking attractive for a few where wages and pensions are better than what they currently pay.
When people make money they spend it across sectors so everyone is a winner. When the Government takes taxes it will probably waste 30%. I would prefer to see wealth distributed rather than taxed and wasted.
The ICAEW are like the Government: a set of plonkers with no understanding of the contract world. They talk about “fundamental reform with a view to removing the differential liabilities that drive tax-motivated incorporation.” Like the Government they seem to think that the main reason someone contracts is to pay less tax. Personally, I am getting sick of being regarded by the Government and organisations like ICAEW as a tax avoider. Most people contract because it represents a life style change. Contractors offer a flexible workforce, and in return for taking a risk, and getting no welfare benefits, sick pay, maternity, staff development, employer contributed pension, holiday pay etc, I do not expect to be taxed the same as a permanent person, as the ICAEW indicates.
Yet more complete and utter rubish from all sides! For one the dividend reforms are purely an illegal super tax hike on contractors, who in all intense and purposes pay far more tax than any of there employee counterparts. I have never paid so much tax. I also went contracting to offer myself control over what I do when I do it with the hope to expand and one day take on employees, but each one of these reforms, dividend, the new ir35 reforms. Are basically dropping one huge brick wall in front of me in the end I won’t be able to afford to work via contracting. I have aspired to do well all my life educating my self no working hard and that’s rewarded by the ignorant low wage idols saying that the rich should be taxed more!? Why? Why should I be (and I’m. Not rich) taxed more? Do I use more services? Do I use more resources than anyone else? No I fact I use less because I pay private takin me off the NHS for a start. I pay for full for everything and I get no benefit, no discounts. Nothing! Why because I worked hard from an early age I relied on no one but my self and paid for every last bit of it myself! Now I’m being branded a tax avoider because I run my own company and I pay dividends to my self!? Risk and reward? I can loose my contacts at a drop of a hat, I don’t get holiday, I don’t get sick pay, I have to deal with HMRC, pay for public liability, indemnity insurances . The list goes on so I would expect to earn more and have some benefit in there to be able to bridge the gaps between contracts, when work is low, when I’m ill, if I need a holiday. This go cement is using the media to bull sh*t us in to submission!
If the idea is to squash all contractor freedom then they are heading in the right direction. Why we are not allowed to run our companies along the same lines as larger companies by setting salary levels and dividend payments is beyond me.
Last time I looked, I paid CT on operational profit and raised revenue by VAT on invoices AND paid personal income tax. It’s not about levelling the playing field between permanent and contract staff and why should it be as contractors take all the risk, it’s all about extra tax being taken from easy targets, maybe HMRC should focus on Amazon and Google etc. a bit more. Also quite frankly, I wouldn’t deal with the deadlines and stress on a day to day basis if I was permanent – just not worth it.