HMRC have launched a new consultation 'Off-Payroll Working (IR35): calculation of PAYE liability in cases of non-compliance'. The aim is to seek views on a potential legislative change to address the over-collection of tax in cases of non-compliance.
The consultation is aimed at individuals who work via an intermediary, such as a Personal Service Company (PSC), or those who may employ intermediaries, such as public bodies, medium and large-sized companies and agencies.
Stakeholders and reports from the National Audit Office and Public Accounts Committee have raised the following issue:
- The introduction of Off-Payroll Working has shifted the responsibility of paying Income Tax and NICs, where an individual is deemed to be an employee, from the employee to the employer.
- Where an incorrect employment status determination has been made, HMRC may hold the employer liable and collect the taxes owed from them.
- If the individual has already paid tax through the intermediary believing that they were outside of the Off-Payroll Working rules, there is no current offset mechanism for HMRC to take these payments into account when determining the employer's liability.
- The only option available is for the worker or their intermediary to file a claim for a repayment, unless the potential overpayment is discovered and corrected before their tax return is filed.
- HMRC can notify individuals of this potential claim but only after the status check is complete (which can take 18 - 21 months) and where they have contact details.
- This is becoming a more common issue due to the increasing amount of non-compliance surrounding the rules.
This issue has already been the subject of informal consultations with key stakeholders, including tax experts and members of the Employment Status and Intermediaries Forum. The outcome was the potential solution that is subject to this consultation.
HMRC proposes to have an offset mechanism that is similar to the existing provisions in the PAYE regulations, where a sole trader has been incorrectly classed as self-employed and not employed. The existing provisions cannot be applied currently due to the intermediary in place between the worker and the employer and given that the provisions do not extend to Corporation Tax and Employer Class 1 NICs.
Given the potential burden to all parties concerned in trying to collate information on how much tax has been paid, it is intended to use assumptions and best judgement to estimate the amount of tax paid by the worker and intermediary.
The worker and intermediary would then receive a direction notice, which they could appeal if it contained incorrect information relating to payments made or taxes paid. They could not appeal the status determination itself.
It is intended that this policy will be implemented from 6 April 2024 and will not apply to cases concluded before that date.
The consultation is open until 22 June 2023. Responses should be sent to:
Consultation Questions
1: Do you agree with the taxes that would be included in and excluded from a set-off? If you do not agree, please explain why.
2: Are there any adverse impacts on the deemed employer, the worker or their intermediary as a result of HMRC estimating the amount of the set-off that would be given? If so, please provide details of these impacts.
3: Would giving a set-off have any impacts on other parts of the tax system for either the deemed employer, worker or their intermediary?
4: Do these grounds for appeal provide sufficient safeguards for deemed employers, workers and their intermediaries where they disagree with the direction to set off amounts already paid against their deemed employer’s PAYE liability?
5A: What information do you, as the client, routinely gather as part of your hiring practices for off-payroll workers?
5B: Please provide your views on how easily a client would be able to obtain the above information and provide this to HMRC if requested.
6: Would allowing a set-off create any adverse incentives or changes in behaviour amongst clients, or other parties in the labour supply chain when determining whether the Off-Payroll Working rules should apply?
7: Do you agree with how the government intends to apply this policy?
8: We expect that businesses would need to spend time familiarising themselves with the changes. Can you provide an estimate of the costs your business would expect to incur to familiarise itself with the legislation?
9: Would asking for further information about the worker and their intermediary result in additional ongoing costs to your business? If so, can you provide an estimate for these costs?
10: Please tell us if you think there are any other specific impacts on other groups or businesses that we have not considered above.
Useful guides on this topic
Off-Payroll Working: PSCs & Private Sector Engagers
What is Off-Payroll Working? Who does it apply to? What are the rules?
Off-Payroll Working: PSCs & Public Sector Engagers
The 'Off-Payroll Working' rules move IR35 and the responsibility to assess a worker's employment status away from the worker's company to the End-Client in the labour supply chain.
Personal Service Company (PSC) tax
What is a PSC? What are the tax implications for a PSC?
External link
Off-Payroll Working (IR35): calculation of PAYE liability in cases of non-compliance
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