IR35 and calculating PAYE liability in cases of non-compliance

New proposal likely to impact individuals who have been incorrectly determined as self-employed for the purposes of the off-payroll working rules

Legislation will be introduced in Autumn Finance Bill 2023 to grant a power that will allow new regulations to be made as follows:

  • In cases where the deemed employer of an individual who worked via their own intermediary would be liable to pay an amount under PAYE regulations in respect of an engagement, and an amount of income tax or corporation tax is estimated to have already been paid or assessed in relation to the engagement, the amount will be treated as having been recovered from the individual or intermediary, and that amount will not be recoverable from the deemed employer.
  • The amount treated as having been recovered will be the best estimate that can reasonably be made by an officer of HMRC in respect of the income tax or corporation tax already paid or assessed.
  • Provision will be made to prevent a person making a claim for the repayment of, or a claim for relief in respect of, deducting or setting off the amount treated as having been recovered.
  • The provisions will be in respect of deemed direct payments made on or after 6 April 2017.

The policy will apply to income tax and national insurance contributions assessed under PAYE on or after 6 April 2024, which arise as a result of an error in operating the off-payroll working rules in respect of deemed direct payments made from 6 April 2017.

The measure gives HMRC the power to set off amounts of tax and national insurance contributions already paid by a worker and their intermediary on income from engagements under the off-payroll working (IR35) rules against a subsequent PAYE liability of their deemed employer. This aims to address the potential over-collection of tax and national insurance contributions in cases of non-compliance with the off-payroll working rules.

The proposal is expected to affect individuals who have been incorrectly determined as self-employed for the purposes of the off-payroll working rules. These individuals will no longer have the opportunity to claim a refund for taxes already paid; however, no one will be worse off as individuals will still pay less tax than would have been due if their employment status was correctly determined. These individuals will not need to take any action or incur costs.