Tax treatment following an incorrect off-payroll assessment

10 August 2018

Public sector contractors who have paid unnecessary amounts of tax as a result of being incorrectly assessed as ‘inside IR35’ under the off-payroll rules have options should they wish to appeal.

Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003, introduced in the 2017 Finance Act, requires that public sector hirers assess the IR35 status, and determine the subsequent tax treatment, of their contingent workers.

The legislation also requires that employer’s National Insurance (NI) and Apprenticeship Levy contributions are paid on top of the fee paid to the contractor by the party making the payment, in instances where the contractor is deemed to be caught by IR35.

In an article by Contractor Calculator it discusses that despite this, many contractors have been subject to incorrect IR35 status assessments and have had employer’s NI deductions taken from their contract rates by hirers and agencies since the reform to the off-payroll rules in the public sector.

The article talks about that although several routes of appeal are available, contractors may only, in some instances be able to retrieve the overpaid income tax and employee’s NI, as the employer’s NI would typically be refundable to the fee-payer – which is either the agency or the hirer. A tax and employment status expert comments on why it is an important reason for contractors to practice due diligence when approaching a new contract:

 “The deduction of employer’s NI from contract rates is a pressing issue and contractors need to take steps to ensure that they don’t unwittingly enter into contracts with clauses permitting these deductions. Right now, hirers and agencies are finding workarounds and contractors are bearing the brunt.

Contractors need to be completely clear about how they are going to be paid and how it will be calculated. If an employer’s NI forms any part of the calculation, it would suggest that the contractor will be paying it, not the client.”

 

The article by Contractor Calculator also discusses useful points around addressing overpaid tax in your self-assessment tax return, taking the client to County Court, applying to HMRC for a tax refund via section 8 and the changes needed to address client non-compliance.

 

CIPP comment

Today sees the closing date for responses to the consultation on options for changes to the off-payroll working rules for engagements in the private sector.

The CIPP and CIPD published a joint survey to gather your thoughts on the options which is now closed but as the CIPP are members of the HMRC IR35 forum any additional comments you may have can still be fed into the consultation process. Please do email policy using ‘IR35 private sector’ as the subject.