Consultation - Off-payroll working (IR35) – calculation of PAYE liability in cases of non-compliance

HMRC has published a new consultation today (27 April 2023) in relation to a possible change to enable HMRC to account for taxes already paid by an individual and/or their intermediary when calculating a PAYE liability where there has been an error in applying IR35 (‘off-payroll working rules’).

Where a supply from an intermediary (typically a Personal Service Company (‘PSC’)) is determined to be outside of the off-payroll legislation, the PSC owner will be required to pay tax and National Insurance Contributions (‘NICs’) on the receipts from their company in respect of that supply. 

If HMRC subsequently determines that the status determination statement was incorrect, the client (‘deemed employer’), or another party lower down the supply chain, will be assessed for the underpayment of tax and NICs on the supply.  This creates a potential for the same payment to be taxed twice. 

Currently, where a worker and their intermediary have paid tax and NICs on income that should have been subject to the off-payroll working rules, they may be entitled to claim a repayment for amounts they have overpaid. HMRC has implemented a process within its existing powers to notify workers and their intermediaries that they may be due a refund for taxes already paid on the engagement, where contact information is available.

The consultation seeks opinion on a proposal from HMRC to introduce legislation to enable tax already paid by an individual or their PSC to be offset from any liability raised against a deemed employer under the off-payroll working legislation.

The closing date for responses is 22nd June 2023.

If this option is taken forward, intention would for a legislative solution to be implemented for 6 April 2024.