The government has proposed further reforms to the IR35 off-payroll working legislation to address tax overpayments where incorrect worker status determinations have been made.
Under the current regime, if an organisation is found to have made errors when determining the employment status of its off-payroll workers, it becomes liable for the income tax and national insurance contributions (NICs) that should have been deducted.
HMRC may end up collecting more tax than is due because the worker and their intermediary could have already paid in the belief that they were outside the rules.
Current legislation does not allow HMRC to offset taxes already paid by the worker or their intermediary against a deemed employer’s PAYE liability. To address this, HMRC is considering whether to allow this for off-payroll working purposes.
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HMRC has published a consultation into the proposed change, which closes on 22 June.
Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, said the speed and narrow focus of the consultation suggested the government planned to introduce the change no matter what response it received.
“The short consultation window of only eight weeks, followed by a response later this year, is a clear signal that the fix will be happening in the next finance bill 2024,” he said.
“The double-taxation flaw in the off-payroll rules was grossly unfair on businesses who were being threatened with tax bills more than four times the perceived underpayment of tax.
“Firms currently under HMRC’s radar can take massive comfort that the plan is for the offset capability to be retrospective, all the way back to April 2017. This will mean any bills that have already been issued, and not settled can now be reduced by approximately 75% – to align with the correct amount of tax that should be paid.”
However, the consultation says that where an organisation and HMRC have reached a settlement before 6 April 2024, the new policy would not be applied retrospectively. In these cases, HMRC will notify the worker and their intermediary of their potential entitlement to claim a repayment.
Susan Ball, employment tax partner at RSM UK and president of the Chartered Institute of Taxation said organisations currently under scrutiny by HMRC could be tempted to drag their heels until any change takes effect
“Typically, a case can take 18-21 months to conclude, and we may see organisations procrastinating over any HMRC compliance checks in the hope that they can take advantage of the new rules when they are introduced,” she said.
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“This consultation is welcome news, and long overdue, as the off-payroll working IR35 rules have been causing headaches for workers and hiring organisations for years now.”
