The new off-payroll working rules are “not sustainable with today’s working practices”, a business body has warned.
The Institute of Chartered Accountants in England and Wales (ICAEW), which published the report, warned that the private sector risks losing talent if proposed IR35 rules were to go ahead.
Under current legislation, the off-payroll working rules are in place to make sure that where an individual would have been an employee if they were providing their services directly, they would pay the same tax and national insurance contributions as an employee.
These rules were “toughened up” for the public sector in April 2017, which transferred responsibility for deciding whether the rules apply and deducting the appropriate taxes from the individual to public authorities.
However, recent research has shown that around 71 per cent of public sector projects have been cancelled or delayed as a direct result of these new rules. Likewise, the NHS has seen around a quarter of its departments lose half of their flexible staff.
Sarah Ghaffari, ICAEW technical tax manager, said the changes to the public sector in 2017 have been “beset by problems” and these “need addressing” before similar changes are introduced to the private sector.
She also warned that businesses are “already having to implement software and process changes for HM Revenue & Customs’ Making Tax Digital” while “dealing with uncertainty around the full extent of the impact of Brexit”.
Commenting on the announcement to introduce new off-payroll working rules to the private sector in May, Financial Secretary to the Treasury, Mel Stride, said: “It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy.
“But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.
“That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance.”