HMRC confirms how to avoid double taxation on payments for those affected by IR35 reforms
30 January 2020
HMRC has provided confirmation that there is a data item that can be used in Full Payment Submissions (FPS) for workers when their earnings have been subject to Pay As You Earn (PAYE) and National Insurance (NI) deductions from their fee payer and they wish to receive statutory payments, and so must receive a salary from their intermediary. When this item has been completed, the worker will not be taxed twice on their earnings.
Box 58A on the RTI Data Items for use from April 2020 is not a new field and is used to report payments that are not subject to tax or NI deductions. Software developers will more than likely give the item a more apt title which reflects the fact that it is used to record non-taxable and non-NICable payments and so it probably won’t appear under the name ‘58A’ on the payroll software’s FPS reporting function.
Under off-payroll working reforms, which are due to be rolled out to medium and large employers from 6 April 2020, the worker’s fee-payer will be responsible for deducting tax and NICs from the worker’s payments, as opposed to the worker’s intermediary. Even if a worker is deemed as being ‘inside IR35’ and must abide by the new rules, they will still not be entitled to statutory payments through the fee-payer. In order to access this entitlement and other benefits, they must receive a salary from their intermediary, because otherwise they have no earnings to calculate entitlement on and determine eligibility for statutory payments. Therefore, they must process a salary through the intermediary.
When the intermediary pays the worker a salary, the relevant values should be entered into box 58A (or whatever its equivalent title is within payroll software) on the FPS, to ensure that double taxation does not occur, as the worker has already had their pay subject to tax and NICs initially, when being paid via the fee-payer. Completion of this box ensures that the salary payment from the intermediary is not taxed but the payment of the salary means that the worker will be entitled to statutory payments.
Further guidance that includes specific information surrounding this topic will be published but no explicit release date has been confirmed yet. As soon as there are any further updates, the CIPP will alert its members via News Online.
Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information.