• Date

    17 Jan 2024
  • Category

    Employer Solutions

An overview of the IR35 offset facility

The IR35 legislation is designed to target tax avoidance of individuals who charge for their services via their own intermediary - most commonly via a Personal Service Company (PSC). Without the ‘intermediary’, an employment relationship would exist between the individual and end user of their services. The IR35 legislation recovers the PAYE tax and National Insurance Contributions (NIC) which would have been due had the worker been directly employed.

Currently, if a ‘deemed employer’ is found to be non-compliant with the IR35 rules for an engagement, HMRC will look to collect Pay as You Earn (PAYE) tax and the corresponding NIC with respect to those engagements from the deemed employer. However, some taxes would have already been paid by the individual or PSC on the same income now being assessed on the ‘deemed employer’. This essentially results in HMRC taxing the same money twice.


What’s changing?

It was announced in the 2023 Autumn Statement that the UK Government will introduce legislation to enable HMRC to reduce the liability of a deemed employer, where that engagement was incorrectly treated for tax purposes. This would allow an offset for tax and NIC  already paid by a worker and/or their intermediary on the payments received from the deemed employer.

It is, however, worth noting that this facility does not extend to setting off against the Class 1 Secondary (Employer’s) National Insurance.


HMRC assessments

Where HMRC have concluded workers are within IR35 and will subsequently be assessing PAYE, they should be asked to suspend the assessment of liabilities until April 2024, when the offset facility can be applied. HMRC have communicated that they are willing to pause assessments to facilitate this offset. While this is the case, specialist advice should be sought before taking any action. Requirements may change depending on specific circumstances.  

Secondary legislation will be laid in due course to set out how it will work, and the changes will take effect from 6 April 2024.


We are here to help

IR35 and employment status is a complex area with significant consequences if dealt with incorrectly.

If you have any questions in relation to IR35 or employment status, please get in touch with a member of our specialist Employment Tax team or your usual Azets advisor.

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