From 6th April 2024 a one page “offset fix” to Clause 17 of the next Finance Bill seeks to address the issue of over-taxation by HMRC in cases where they have deemed non-compliance with IR35.
What does IR35 Offset mean?
The basic change to IR35 is to negate a scenario where there is double taxation. When HMRC changes a determination, they offset tax already paid against what is then owed. It works both ways, if a PSC gets a full refund on outside IR35 taxes paid, they then have a zero-tax liability. PWC has summarised those who will or won’t be effected as;
“The different taxes and classes of NICs that would be included are:
Corporation tax paid by an individual’s PSC on the income from the off-payroll working engagement.
Income tax and employee NICs paid on a salary to the individual from their intermediary, where the salary is paid out of income from the off-payroll working engagement.
Class 2 and 4 NICs paid by the individual with respect to income from the off-payroll working engagement, where the intermediary is a partnership or another individual.
Tax paid on dividends received by a worker from their own PSC, where the dividends are paid out of income from the off-payroll working engagement.
HMRC does not intend to include the following as a part of any set-off:
Employer NICs paid by the individual's intermediary.
Class 3 NICs payments made by the individual.
Tax and NICs paid on any salary and dividends received by any other employees, directors or shareholders of the individual’s intermediary.”
The offset will be included in the next Finance Bill and will apply to all liabilities assessed on or after 6th April 2024.
Why is this a positive step?
At the moment, there is a chance that HMRC can double tax in a scenario where HMRC deem an end employer’s outside IR35 determination as incorrect. The employer is liable of the full amount of tax and NIC due, regardless of any taxes paid by the contractor, resulting in HMRC collecting more money than it would’ve been entitled to if the determination had been correct from the outset, fines notwithstanding.
As an employee, what do you need to do with the new IR35 changes?
There really isn’t anything to do immediately as an end employer other than stay up to date with progress and look out for updates from Carrington West. If you are an end employer who has been reticent to engage with contract workers due to the perceived high risk, please do reach out to us and we can fully explain the current situation, the changes and how this can help you going forward.
