THE BIG IR35 DOUBLE TAXATION DEBATE

Just when you thought you’d stopped seeing IR35 in the news, up it pops again. Recent news has been very welcomed though, as HMRC confirm they’re opening a consultation to review the issue that critics are calling the unfair double taxation burden.

They announced in late April that a 8 week consultation was being undertaken to consider how a new offset mechanism could be put in place to manage situations where HMRC determine an out of scope assignment should have been inside of IR35.

Investigating the problem

Currently where HMRC determine that previous assignments should have been managed inside IR35, they require the company who engaged the worker to pay the income tax and national insurance contributions that would have applied at the time. With the company required to incur all the responsibility and the worker carrying no burden.

The problem, is that HMRC require the full income tax and national insurance contributions liability to be paid by the company. Critics point out though that the Limited Company workers had already paid an element of this through their corporation tax – which would equate to double taxation.

They say that this corporation tax payment should be taken into consideration before HMRC pass on a tax bill to the company, billing them for the full income tax and national insurance contributions is simply unfair.

Coming up with a solution

There’s no firm commitments in place as to when companies can expect an outcome from the completion of HMRC’s review – known formerly as the off-payroll working (IR35) calculation of PAYE liability in cases of non-compliance open consultation.

But we’ve been told a formal update and summary of responses will be issued later in the year. Although it’s likely any official changes to the legislation won’t come into effect until the next tax year in April 2024.

What’s certain, is that all eyes will be on HMRC to backdate the decision – as this double taxation implication has been highlighted through official channels for years ahead of the IR35 private sector roll out.

Preparing for a rebate

As a business, if you’ve had any worker assignments overturned by HMRC, then it’s worth starting to look at these cases.

Review the income tax and national insurance contributions reclaimed by HMRC for each of them, and consider what the overpayments could look like if the Limited Company worker’s corporate tax was taken into account.

Even with just one worker being reclassified by HMRC as in scope and liable for deductions, means there should be some costs that could be recovered should HMRC agree to offset the Limited Worker corporation tax that has already been paid against the assignment.

Preparing for a potential HMRC enquiry

If you operate within the construction industry, you’ll already be aware that HMRC has started contacting companies within the sector to advise of their intention to open an enquiry to review IR35 compliance.

They started with the tech sector, before moving to construction – so it would be a good time to check your recruitment processes are still compliant and effectively managing IR35 status determinations. Where you engage intermediaries or a recruitment supply chain, this need to ensure compliance becomes even more important – as HMRC has made it very clear that the company, end client, carries the liability.

Here at Linx we support construction and engineering companies with bespoke supply chain audits that assess whether the right compliance checks are in place. As well as monitoring the consistency of  processes that are being delivered across suppliers. This includes a deep dive into IR35 and how status determinations and PAYE deemed payments are managed by individual agencies.

If you’re looking for an independent adviser to check your organisation remains IR35 compliant, then our team are always happy to chat about our services in more detail.