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  • Publish Date: Posted 3 months ago
  • Author:by Katie Ball

Autumn Statement 2023: The Off-Payroll Offset

​In a relatively uneventful mini-budget for contractors, Chancellor Jeremy Hunt has officially announced the implementation of the IR35 offset, effective from 6th April 2024. While this move was expected, this will be welcome news for the contracting sector. Below, we provide a summary of what these changes are, who they will affect, and how this is likely to affect the recruitment sector.What is the IR35 offset, and who will this impact?To date, the HMRC hasn’t had the facility to offset the PAYE liability issued to the fee-payer to account for the taxes already paid by the contractor.From April 2024, the IR35 offset will give the HMRC the power to set amounts of tax and National Insurance contributions already paid by a worker and their intermediary on income from engagement under the off-payroll working rules against subsequent PAYE liability of their deemed employer. This change aims to address the potential issue of over-collection of tax and National Insurance contributions in cases of non-compliance with the off-payroll working rules.This is seen as a solution to the double taxation issue, where an ‘outside IR35’ status determination has been incorrectly made. The HMRC will seek to recover the PAYE liability from the fee-paying party, without accounting for the taxes already paid by the contractor on their income from that engagement. This proposal is expected to benefit both the public and private sectors engaging workers via their own limited companies. It will reduce a deemed employer’s PAYE liability if a compliance check reveals that the IR35 rules were not applied correctly. Whilst this measure is not expected to have a significant economic impact, it is expected to impact up to 53,000 businesses, with operational impacts totalling £1.85 million between the tax years 2023/2024 – 2028/2029.The proposal is expected to impact individuals who have been incorrectly determined as self-employed under off-payroll working rules. Although these individuals will no longer have the opportunity to claim tax refunds, they will still pay less tax than they would have they been correctly determined. Proposed revisionsThis legislation introducing the IR35 Offset will be part of the Autumn Finance Bill 2023. It will amend Chapter 3 of Part 11 of ITEPA 2003 to introduce a power that will allow new regulations to be made in the following ways: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 employerThis 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 assessedProvision will be made to prevent a person from 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 recoveredThe provisions will be in respect of deemed direct payments made on or after 6 April 2017Class Reforms for National Insurance ContributionsPreviously labelled ‘outdated and needlessly complex’ the rate, set at £3.45 per week is being abolished altogether, effective from 6th January. The Chancellor has estimated that this would affect 2 million self-employed workers, saving an average of £192.00 per year.Additionally, Class 4 NICs have also been cut. Currently charges at 9% on profits between £12,570 and £50,270, the rate will be cut to 8%, effective from 6 April 2024.Is this likely to affect the recruitment sector?These changes are likely to provide some comfort to workers, agencies, and end-clients alike. This means that soon clients can engage with Personal Service Companies (PSC’s) with confidence as the risk of liability under the off-payroll working rules will be substantially reduced, The Law Palace has stated via the Contractor Calculator. The amendments to the National Insurance Contributions are likely to have little impact on contractors operating via their own limited company. Tania Bowers, Global Public Policy Director at APSCo commented, ‘For the professional staffing sector, the news that HMRC is proceeding with the set-off proposals to off-payroll rules is welcome. This latest development – outlined in the full details of the Autumn Statement – has followed three years of lobbying by APSCo on this issue which started when we held the co-chair position of the then-named IR35 Forum. Although it doesn’t mitigate the dampening impact overall of off-payroll on professional contractors, who should be included in the Chancellor’s broad appreciation of the self-employed, it does reduce the unfairness of the rules on recruiters, who are the deemed employers.’IR35 Compliance ExpertsIf you have any questions surrounding IR35 and any of the latest changes and how they affect you as an individual or as a business, give out specialist team a call on 01892 553355 or email info@gerrardwhite.com.

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In a relatively uneventful mini-budget for contractors, Chancellor Jeremy Hunt has officially announced the implementation of the IR35 offset, effective from 6th April 2024.

While this move was expected, this will be welcome news for the contracting sector. Below, we provide a summary of what these changes are, who they will affect, and how this is likely to affect the recruitment sector.

What is the IR35 offset, and who will this impact?

To date, the HMRC hasn’t had the facility to offset the PAYE liability issued to the fee-payer to account for the taxes already paid by the contractor.

From April 2024, the IR35 offset will give the HMRC the power to set amounts of tax and National Insurance contributions already paid by a worker and their intermediary on income from engagement under the off-payroll working rules against subsequent PAYE liability of their deemed employer. This change aims to address the potential issue of over-collection of tax and National Insurance contributions in cases of non-compliance with the off-payroll working rules.

This is seen as a solution to the double taxation issue, where an ‘outside IR35’ status determination has been incorrectly made. The HMRC will seek to recover the PAYE liability from the fee-paying party, without accounting for the taxes already paid by the contractor on their income from that engagement.

This proposal is expected to benefit both the public and private sectors engaging workers via their own limited companies. It will reduce a deemed employer’s PAYE liability if a compliance check reveals that the IR35 rules were not applied correctly. Whilst this measure is not expected to have a significant economic impact, it is expected to impact up to 53,000 businesses, with operational impacts totalling £1.85 million between the tax years 2023/2024 – 2028/2029.

The proposal is expected to impact individuals who have been incorrectly determined as self-employed under off-payroll working rules. Although these individuals will no longer have the opportunity to claim tax refunds, they will still pay less tax than they would have they been correctly determined.

Proposed revisions

This legislation introducing the IR35 Offset will be part of the Autumn Finance Bill 2023. It will amend Chapter 3 of Part 11 of ITEPA 2003 to introduce a power that will allow new regulations to be made in the following ways:

  • 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

  • This 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 from 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

Class Reforms for National Insurance Contributions

Previously labelled ‘outdated and needlessly complex’ the rate, set at £3.45 per week is being abolished altogether, effective from 6th January. The Chancellor has estimated that this would affect 2 million self-employed workers, saving an average of £192.00 per year.

Additionally, Class 4 NICs have also been cut. Currently charges at 9% on profits between £12,570 and £50,270, the rate will be cut to 8%, effective from 6 April 2024.

Is this likely to affect the recruitment sector?

These changes are likely to provide some comfort to workers, agencies, and end-clients alike. This means that soon clients can engage with Personal Service Companies (PSC’s) with confidence as the risk of liability under the off-payroll working rules will be substantially reduced, The Law Palace has stated via the Contractor Calculator.

The amendments to the National Insurance Contributions are likely to have little impact on contractors operating via their own limited company.

Tania Bowers, Global Public Policy Director at APSCo commented, ‘For the professional staffing sector, the news that HMRC is proceeding with the set-off proposals to off-payroll rules is welcome. This latest development – outlined in the full details of the Autumn Statement – has followed three years of lobbying by APSCo on this issue which started when we held the co-chair position of the then-named IR35 Forum. Although it doesn’t mitigate the dampening impact overall of off-payroll on professional contractors, who should be included in the Chancellor’s broad appreciation of the self-employed, it does reduce the unfairness of the rules on recruiters, who are the deemed employers.’

IR35 Compliance Experts

If you have any questions surrounding IR35 and any of the latest changes and how they affect you as an individual or as a business, give out specialist team a call on 01892 553355 or email info@gerrardwhite.com.

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