I know it might seem like all we write about here at Larsen Howie, but the IR35 reforms are, in the words of Ron Burgundy, kind of a big deal.
When it comes to the prospect of IR35 reforms being extended from the public to the private sector, many contractors will hope things stay as they are.
Is no news good news? Well, not exactly. Many feel the reforms are coming whether we like it or not. And some are starting to consider what might be a better situation for contractors if they're given the green light.
Open letter to HMRC
The Institute of Chartered Accountants in England and Wales has written an open letter to HMRC, according to Contractor UK. In this letter, the ICAEW outlines three key changes it would like to see before any reforms hit the private sector.
The first focuses on fees for personal service companies ‘that comply with both the Companies Act and with financial reporting standards.’
The ICAEW is of the opinion that this legislation needs to be ‘amended to allow a corporation tax offset for the full amount recorded as turnover.’
Attached to this first point is a further comment about VAT treatment of the contract fee. This should be resolved before any reforms, says the Institute.
The second main change centres on separating ‘regular’ staff from workers who fall ‘inside IR35’. The ICAEW highlights an ‘absence of means’ to separate the wheat from the chaff.
The final change needs to be to the CEST tool says the ICAEW. That’s right – that old chestnut.
The Institute’s letter reads: “It is not suitable for use in the private sector. 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.”
Would these three changes, if made to the reform legislation, alleviate things? It’s hard to say. Most contractors will agree with what the ICAEW is trying to do. But they will also be praying the reforms don’t come at all.