Legislation to offset taxes paid by workers caught by IR35 welcome, says CIOT
The announcement that taxes already paid by workers who were incorrectly categorised as outside the scope of off-payroll working rules (also known as IR35) can be offset against the tax due from their deemed employer is welcome, says the Chartered Institute of Taxation (CIOT).
The government has confirmed that legislation will be brought forward so that in cases where a worker’s employment status is mistakenly categorised as self-employed or a contractor, when they should instead have been classed as a deemed employee, any taxes they have already paid will be counted against those now due from the deemed employer.
The CIOT has been calling for this move, saying it would be fairer and more efficient than the current system which obliges HMRC to notify affected workers of their recategorisation and requires them to recalculate their taxes, amend tax returns and submit claims for overpayment relief.
Colin Ben-Nathan, chair of the CIOT’s Employment Taxes Committee, said: “It is important that tax rules are fair to workers, their clients and engagers, and to the Exchequer.
“At the moment a worker who is re-categorised as being in a ‘deemed employment’ relationship is likely to end up paying no or little tax on the amount paid to them by the organisation who engaged them, with that organisation effectively bearing that tax as an additional cost. We do not believe that can be the right answer.
“The set-off approach will, in particular, be much fairer on the public purse in cases that involve public bodies, as taxes paid by workers as if they were outside the scope of IR35 would be retained by the Exchequer and only the difference would be settled by the public bodies out of their government funding. At the moment, in these cases, the full tax cost is potentially being borne by the Exchequer and the worker can effectively make a windfall gain at the Exchequer’s expense.
“We welcome confirmation that the new approach will be legislated for.
“We understand that a small number of open compliance cases have been paused pending the set-off decision, and we hope these cases can now be provisionally settled on the basis of this new approach being legislated. This would enable payments on account to be made now rather than having to wait until next April to negotiate the set-off and pay the resultant net liability. This would benefit the Exchequer’s cashflow.”
