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Some good news about IR35: changes for off-payroll working applying from April 2024

Posted: 13/12/2023

Changes to the IR35 regime (also known as off-payroll working), which will come into effect from April 2024, are likely to provide some welcome clarity for organisations that work with individuals via an intermediary company.

Off-payroll working applies where individuals provide their services through an intermediary, such as their own personal services company, to another party, where – if the services were provided directly – there would be an employment relationship for tax purposes. There have been changes to these rules in the past couple of years, particularly regarding their application to users of personal service companies in the private sector.

In simple terms, the recipient of the individual’s services has to make a status determination statement, explaining whether the individual is employed or self-employed for tax purposes.  This is not always an easy decision to make, even if one uses HMRC’s ‘Check Employment Status for Tax’ (CEST) tool.

Where an individual is a deemed employee for IR35 purposes, they are taxed as such, with the ‘deemed employer’ (normally the recipient of the services) being required to account for income tax and NICs via PAYE on any payments due for the work.   

If the deemed employer gets the status determination statement wrong, and incorrectly concludes that the individual was outside of the IR35 rules, then under existing legislation HMRC has no duty to set off income tax and/or corporation tax already paid by such a worker, or their intermediary company, when assessing the tax liability of the deemed employer. This leads to the deemed employer bearing the full cost of the liability and, in some cases, over-collection of tax.  

The new measures (applying from April) will formally require such a set-off, reducing the tax burden on the deemed employer and meaning some of the liability is shared by the worker/their intermediary. In practice, it is understood that HMRC has generally been prepared to apply the set-off as a concession, but the new regime will bring more certainty for businesses and organisations that hire individuals through intermediary companies.

HMRC has stated that the objective of this new policy is to address a potential over-collection of tax and National Insurance contributions, and resolve an unfairness in the tax system. While it may not simplify the regime significantly, it at least provides some clarity and removes an element of potential unfairness.

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