IR35 – Pausing Settlement

The government is introducing a policy change that may affect organisations with an open compliance check as part of the off-payroll working rules (IR35). As announced in the Autumn Statement in November 2023.

Currently, when mistakes are made around compliance, HMRC reviews and calculates all tax and NI due under IR35.

?New rules will mean HMRC will offset any tax or NI already paid by the feepayer or intermediary and will be for any IR35 since 2017

Previously, this was not the case because HMRC had no legislative means within the IR35 rules of offsetting the tax the affected contractors may have already paid, but a change to the Finance Act 2024, which received Royal Assent on 22 February 2024, has now rectified that.

From 6th April 2024, HMRC will be able to take into account, or ‘set-off’, the taxes the worker or their intermediary have already paid against the amount the deemed employer owes.

The policy applies to Income Tax and National Insurance contributions they assess on or after 6th April 2024, from off-payroll working errors in payments since 6th April 2017.

What this could mean for you?

Organisations may be able to pause the settlement of their open off-payroll working compliance check until after 6 April 2024 if:

• the compliance check has reached settlement.
• the organisation has acknowledged in writing an error in applying the off-payroll working rules?
• the deemed employer’s gross liability, including any penalty, has been ?agreed??

The organisation will also need to provide the information needed to work out the offset.

So this would be:??

• the worker’s full name or National Insurance number
• the name of the Personal Service Company and Company Registration Number??

??

Next steps?

For any organisations with open off-payroll working compliance checks, the compliance check will carry on as normal.???

If an organisation meets the above conditions when HMRC is ready to agree on a settlement, they will ask the organisation if they want to pause. If the pause is agreed, HMRC will contact organisations again after 6 April 2024 to settle the compliance check.??

Organisations do not have to pause their settlement if they do not want to. If organisations, choose to pause, they are advised to make a payment on account for the full amount, to stop statutory interest building up.??

The change also means contractors will no longer be entitled to claim back any tax they have previously paid to HMRC in instances where their end-hirers have been found to have made IR35 status determination errors. ?

“The new rules only apply to settlements made after April 2024,” Firms who settled before April 2024 won’t get any refunds.”

?HMRC has also issued new guidance and guidelines for employers and feepayers:

Help to comply with the reformed off-payroll working rules (IR35) — GfC4 - GOV.UK (www.gov.uk)

?The guidelines include best practice and examples of good systems and processes which can be adapted for each organisation

And could help reduce the risk of making an error when determining a worker’s status for tax purposes.