The government has launched a consultation to address the ‘double taxation’ of IR35 under the off-payroll working rules.

The consultation, launched yesterday (27th April), will explore ways HMRC can account for taxes already paid by a contractor when calculating the tax liability owed by a business in the event of non-compliance.

As things stand, HMRC does not factor in the tax already paid by the contractor during the engagement. It means businesses (which are liable for IR35 under the off-payroll working rules) are overtaxed, should HMRC find non-compliance. 

The consultation will run for 8 weeks, until 22nd June.

More information can be found here. 

Qdos CEO, Seb Maley, commented:

“This is potentially game-changing. The double-taxation of IR35 under the off-payroll rules is a massive problem. HMRC doesn’t offset the tax already paid by a contractor when handing a business a tax bill. Put differently, it means HMRC collects much more than it should. It’s morally wrong. 

“A consultation marks progress. In theory, it’s an issue which can and should be solved relatively easily too. Even so, I’m amazed that the government has refused to look into this until now. Westminster knew this was a problem some time ago, but has done nothing about it.

“The double taxation of IR35 gives needlessly risk-averse businesses another reason not to engage contractors – because if they’re found to be non-compliant, HMRC will over-tax them.”

Susan Ball, employment tax partner, RSM UK and president of the Chartered Institute of Taxation (CIOT) said:

‘This consultation is welcome news, and long overdue, as the off-payroll working IR35 rules have been causing headaches for workers and hiring organisations for years now. If implemented, the new rules will not come into force until April 2024 though, and will not be applied retrospectively. This means hiring organisations may be tempted to drag their heels with any HMRC compliance checks in the meantime.

“Typically, a case can take 18-21 months to conclude, and we may see organisations procrastinating over any HMRC compliance checks in the hope that they can take advantage of the new rules when they are introduced.”

Matt Fryer, MD of Brookson Group, a People2.0 company, says:

“HMRC’s consultation on the issue of double taxation under IR35 is a timely reminder that the off-payroll rules are actively being enforced.  The positive news for end hirers is that this consultation may result in a significant reduction in the amount of tax that is due should an IR35 status assessment be successfully challenged by HMRC.

“Ironing out this well-known issue will pave the way for the government to pursue lost tax revenue from April 2024. Businesses working with contractors and freelancers need to ensure that their hiring systems and processes are robust now, to avoid significant tax bills further down the line.”

 

 

 

 

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.