Measure
The government has today published the outcome of its consultation on proposals permitting HMRC to account for taxes already paid by the off-payroll worker and/or their intermediary (typically a personal service company) when calculating a deemed employer’s PAYE liability under the off-payroll working rules. This “set-off” will be applicable where the off-payroll worker has been incorrectly determined as self-employed for the purposes of the off-payroll working rules.
The government noted that responses received were supportive of the proposed measures and recognised the practical difficulties in collating information leading to the need for HMRC to make estimates using their best judgement. However, several respondents to the consultation felt that the methodology used should be open to public scrutiny.
Although several amendments were proposed by respondents, the government has decided to stick with its original proposals. To recap, the measures proposed in the consultation would permit offset for the following taxes paid in respect of the income from an engagement:
However, no set-off would be available for:
Where HMRC determine that a set-off can be given, the worker and PSC would then be barred from making a claim for repayment of the relevant tax and/or NIC. The worker and PSC would be given 30 days to appeal against the decision.
Public sector organisations and medium/large private sector organisations who have off-payroll labour with intermediaries such as PSCs in their supply chain, and workers who have been incorrectly determined as self-employed for the purposes of the off-payroll working rules.
The set-off will apply to deemed direct payments made from 6 April 2017, where settlement has not already been reached.
The measures will be effective 6 April 2024.
Legislation will be introduced in Autumn Finance Bill 2023 to enable HMRC to make the necessary regulations once the Finance Bill becomes law.
We welcome confirmation that legislation and regulations will be introduced to address the over collection of PAYE and NIC in these circumstances, and to address the inequity inherent in the current legislation for off payroll workers and their engagers. HMRC’s approach to organisations with “in flight” status reviews is also welcomed, offering a pause ahead of the proposed legislation taking effect, to enable them to ultimately benefit from it, and thereby removing the disincentive for those who discover errors in the interim from making disclosures.
We remain hopeful that HMRC will make public their methodology for making estimates of tax paid available for set-off.