‘Set-Off’ Changes to IR35 Rules Confirmed by HMRC

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

Currently, when HMRC find that a client has made a mistake in applying the off-payroll working rules, it assesses how much the deemed employer owes in Income Tax and National Insurance contributions.

As announced at the Autumn Statement in November 2023, from 6 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 assessed by HMRC on or after 6 April 2024, from off-payroll working errors in payments since 6 April 2017.

The tax authority said organisations may be able to pause the settlement of their open off-payroll working compliance check until after 6 April 2024.

In a statement HMRC said it would only consider a pause if:

· the compliance check has reached settlement, and:

· 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 gives us the information we need to work out a set-off, which is:

· the name of the Personal Service Company and Company Registration Number

· the worker’s full name or National Insurance number

HMRC said: “For organisations with open off-payroll working compliance checks, we will carry on with our compliance check as normal.

“If an organisation meets the above conditions when we are ready to agree a settlement, we will ask the organisation if they want to pause. If we agree to pause, we 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, we advise organisations to make a payment on account for the full amount, to stop statutory interest building up.”