Extend an off-payroll rule-style offset to IR35 and MSCs, HMRC urged

HM Revenue & Customs should extend the offset it has consulted on for the off-payroll rules of April 6th 2017/2021, to both ‘old’ IR35 and the Managed Service Companies legislation.

David Kirk, a tax adviser, says a “similar” mechanism to the set-off which is proposed to apply to the rules from April 6th 2024, ought to apply to the 2000 and 2007 frameworks too.

“Allowing tax due back to taxpayers to be offset against tax paid by them when they both arise from the same [status-related] mistake is rather good,” says David Kirk & Co’s founder.

'Rank injustice'

The adviser added; “It also allows interest to be calculated correctly automatically. [So] let’s see HMRC do something similar in the case of the ‘old’ IR35 rules and managed service companies.

“It would remedy a rank injustice in HMRC charging [taxpayers] interest on balances that do not exist in any meaningful economic sense.”

Kirk told ContractorUK that he submitted his idea for an MSC/IR35 rules set-off to HMRC before the off-payroll rules offset consultation closed on June 22nd.

He says it’s his idea -- insofar as HMRC hasn’t suggested it – and he confirmed that despite the ‘old’ label, IR35 of 2000 still applies to PSCs with small and foreign clients.

'Huge reduction in potential liabilities'

Kirk’s hope is that HMRC realises that an MSC/IR35 set-off would cut its workload, because it would save inspectors having to visit and issue corporation tax or self-assessment refunds.

But end-clients and recruiters are the beneficiaries of the only set-off on the table right now, says Bauer & Cottrell’s Charlie Hemsworth, writing exclusively today for ContractorUK.

“If it goes ahead, the huge reduction in potential liabilities should be a great comfort to both engagers and agencies, particularly as it will apply right back to April 6th 2017,” she writes.

Indeed, HMRC says the aim is for set-off to apply from April 6th 2024 “in respect of deemed direct payments made from 6 April 2017, when the public sector reform was introduced.”


When it’s in place, the set-off would stop the need for HMRC to notify workers and their intermediaries regarding potential entitlement to claim a repayment of taxes overpaid.

But the ‘when’ is bothering IR35 contract reviewer Seb Maley, who sounds aware that in the now-closed consultation, HMRC says applying the set-off from 06.04.24 is its “intention”.

“We’ve seen it time and time again when the government consults on something only to ignore the issue for years,” says Mr Maley, CEO of Qdos.

“Time is of the essence with this. The government must move quickly to end the double taxation of IR35, which sees HMRC collect much more than it’s owed.

“The longer IR35 is double taxed, the more risk-averse businesses are likely to be, and the more damage done to the flexible workforce.”

'Best interests'

Speaking after Report on Jobs by the Recruitment & Employment Confederation said “lingering economy certainty” hit hiring in June, the IR35 contract review boss added:

“At a time when businesses need flexible talent to navigate this difficult economic climate, the government should be doing everything in its power to help firms engage these workers. It’s in the best interests of businesses, contractors and the economy.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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