IR35 offset legislation comes into effect.
The beginning of the new financial tax year on April 6th brought the welcome IR35 offset changes.
The changes, introduced to address the issue of “double taxation,” have been heralded as a welcome update to the current off-payroll working rules, which have been consistently criticised since their introduction to the public sector in 2017 and the private sector in 2021.
One particular gripe was the potential for double taxation, where HMRC proved an outside IR35 assessment incorrect. With hirers potentially responsible for the outstanding tax liabilities for incorrect assessments, many in the industry have concluded that the double taxation issue has been a significant factor in businesses' reluctance to hire contractors on an outside IR35 basis.
What is IR35 'double-taxation'?
Where HMRC can prove that a contractor has incorrectly operated outside IR35 and the engagement should have been treated as employment, the fee-payer faced a PAYE liability for unpaid income tax and NICs.
However, before the offset legislation, the liability didn't consider taxes such as corporation tax that the contractor would have paid in the normal running of their limited company during the assignment.
In such circumstances, the contractor was entitled to claim these taxes back, but if they didn't, and the fee-payer paid the whole PAYE liability, then HMRC received double tax.
IR35 offset legislation eradicates double taxation
The ability to offset any taxes and national insurance, already paid by the contractor, against any fines or penalties for an incorrect determination is a significant shift for contractors and hirers.
The IR35 offset now means that HMRC can deduct already paid taxes related to the assignment from the fee-payers liability.
With this change now effective, some of the concerns and caution held by private sector businesses up until now could be alleviated, prompting more confidence in engaging contractors on an “outside IR35” basis.
To understand how Champion Contractors can support you with IR35, call the team on 0161 703 2549 or email info@championcontractors.co.uk.
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