Fix three IR35 reform issues before any rollout – ICAEW

Three big problems with the reformed IR35 legislation for the public sector “need to be resolved” before similar changes can be considered for the private sector, says the ICAEW.

The UK’s leading accounting body identified the three last week in a letter to Mel Stride, the financial secretary to the Treasury, who has spoken out in favour of extending the reforms.

The first is; to account for “fees in workers’ personal service companies in a way that complies with both the Companies Act and with financial reporting standards.”

Seemingly the most fundamental problem in the ICAEW’s view (it wrote to Mr Stride about it, further to writing to HMRC), it flagged it up in time for PSCs’ April 5th year-ends.

“We believe that the legislation needs to be amended to allow a corporation tax offset for the full amount recorded as turnover,” the ICAEW told HMRC in its letter.

“The VAT treatment of the contract fee also needs to be resolved…we believe that these matters needs [sic] urgent attention.”

The second problem is the “absence of a means for those who have to include ‘deemed employees’ in their payrolls to distinguish them from true employees in their payroll submissions”.

Like the first issue on the accounting treatment of the contract fee in PSCs’ accounts, this second issue – separating out staff from 'inside IR35' workers when submitting to HMRC, the ICAEW says it is ready to discuss solutions.

The third problem also in need of resolving before the April 2017 reforms to IR35 can be rolled out universally, relates to the IR35 digital tool, introduced as the ESS but rechristened CEST.

“It is not suitable for use in the private sector,” wrote the Institute of Chartered Accountants in England and Wales (ICAEW).

“HMRC has stated that CEST does not cover all scenarios, including the mutuality of obligations master and servant test, and that the tool was designed based on public sector contracts.

“Further, there are also no rights of appeal for individual workers who disagree with the CEST status decision.”

The institute, which has made both letters available on its website, warned that the possible extension of the April IR35 reforms would result in the population affected by the three problems ‘increasing significantly.’