New consultation: HMRC seeks views on off-payroll working set-offs

27 April 2023

HM Revenue and Customs (HMRC) has released an open consultation titled “off-payroll working (IR35) – calculation of PAYE liability in cases of non-compliance”.

The consultation will investigate legislative changes required to allow HMRC to rectify errors in tax collection when status determinations have been incorrectly completed. Where HMRC finds errors, the deemed employer becomes wholly liable for the Income tax and National Insurance (NI). This issue could occur when a worker or intermediary paid tax, believing themselves to be outside of the off-payroll rules, when the engager has also made payments for tax and NI.

HMRC currently does not have the power in legislation to set off tax and NI paid by the worker or intermediary against the PAYE liability of the deemed employer. Instead, Workers are notified where they may be due a refund. The consultation explores the possibility of alternative solutions which allow the liabilities to be shared between the worker and client by estimating set off amounts.

The consultation document outlines an illustrative example of the proposed process as well as their objectives for any solution implemented. These objectives are:

  1. a solution must continue to incentivise compliance with the off-payroll working rules and encourage clients to take reasonable care and make correct status determinations from the outset
  2. a solution must not result in the client gaining an economic advantage from getting the status determination wrong
  3. the amount to be set against the deemed employer’s PAYE liability must be calculable, either exactly or approximately, using information that is currently available to HMRC or that can be provided by the deemed employer
  4. a solution should share the tax burden more equitably between the deemed employer and worker
  5. HMRC should not collect more tax and NICs than is necessary to achieve the key principles of the off-payroll working rules
  6. a solution should not give rise to obligations and rights that are too difficult to exercise or implement in practice, both for HMRC and taxpayers
  7. a solution should minimise the administrative burden of correcting errors for all parties
  8. a solution should encourage co-operation between HMRC and taxpayers.

Further exploration is given to:

  • the taxes within and outside of scope for the calculations
  • how HMRC will conduct the calculations
  • notifications sent and the appeals process
  • the additional information HMRC will need to effectively process a set-off
  • compliance and behavioural impacts
  • penalties
  • settled compliance checks.

There is a lot to unpack with this consultation and could have future impact on any employer who needs to make status determinations. This consultation closes on 22 June 2023.

Your views will help shape proposals and feed into HMRC’s data gathering. The CIPP will be responding to various consultations released today, as part of the tax administration and maintenance day (TAMD). If you are interested and want to have a say, please keep an eye out for CIPP roundtable and think tank invites which will be sent to full, fellow and Chartered members.


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