HMRC waves through IR35 offset, allowing off-payroll set-off ‘in certain conditions’

HMRC has waved through the offset for the off-payroll working rules, ContractorUK has learnt.

The tax authority yesterday explained that IR35 investigation-targets could use the ‘set-off’ mechanism, proposed from April 6th 2024, from now onwards, in certain circumstances.

Despite those “certain conditions,” in HMRC-speak, it is now difficult to see “any reason why the new offset won’t apply from April,” according to tax specialist Angela Ferguson.

Director at PSTAX, Ferguson is the first adviser who HMRC disclosed the offset’s go-ahead to, advising in a disclosure case that her client could use it, should the organisation wish to.

'HMRC letting current OPW checks benefit from the offset'

“I’ve just been informed by HMRC that they are letting current off payroll-working audits/disclosures benefit from the offset changes proposed to be introduced from 06.04.24.”

Taking to LinkedIn, Ferguson continued: “HMRC are offering end-clients the opportunity to pause their compliance check if their case meets certain conditions.

“The employer can then benefit from the proposed offset changes coming in from April 6th 2024. This could apply to errors going back to April 2017.”

'Certain conditions for the set off are four-fold'

As to “certain conditions” where the offset can be used, they are four-fold according to an HMRC document handed to Ferguson, who shared its contents with ContractorUK.

“We would only consider a pause if [1] your compliance check has reached settlement, and [2] you’ve acknowledged in writing an error in applying the off-payroll working rules,” begins the HMRC document.

“[And 3] the deemed employer’s gross liability, including any penalty, has been agreed, [and 4] you give us the information we need to work out a set-off.”

'What happens next?'

After listing the set-off details it needs (PSC’s name; number, worker’s full name or NI number), HMRC offers further information, including advice under “What happens next?”

“We’ll carry on with our compliance check as normal," begins the section. "If you meet the above conditions when we’re ready to agree a settlement, we’ll ask you if you want to pause.

“If we agree to pause, we’ll contact you again after 6 April 2024 to settle the compliance check. You don’t have to pause your settlement if you don’t want to.

“If you do choose to pause, we’d advise you to make a payment on account for the full amount, to stop statutory interest building up.”

'More in line with Demibourne'

The document is a general HMRC document not bespoke to Ferguson’s client, and for that implication -- that the offset guidance will apply to all organisations, advisers are pleased.

“Great to see the IR35 position finally falling more in line with the Demibourne position that has existed for self-employment cases for many years,” reflected Dains Accountants’ James Hunt.

Seb Maley, of IR35 contract review firm Qdos agrees that, pending HMRC confirmation (ContractorUK has asked the Revenue to comment), a form of offset to use now is “good news all round.”

'Failure to offset liabilities is a gaping hole in the off-payroll working legislation'

“At last, logic seems to be prevailing,” Mr Maley, a long-time supporter of the setoff mechanism told ContractorUK.

Speaking yesterday afternoon, he added: "It would have been a travesty for HMRC to take any other approach, given that the failure to offset tax liabilities is a gaping hole in the legislation.

“This huge oversight by the government sees businesses overtaxed for non-compliance, which has seen fewer contractors engaged outside IR35. The sooner it’s rowed back on, the less risk-averse businesses will be in their approach to the off-payroll working rules.”


Asked why the offset has been unveiled for use in some circumstances now, ahead of April 6th 2024 and before HMRC has even responded to the offset consultation, Ferguson isn’t entirely sure.

Head of employment taxes at PSTAX, she nonetheless offered: “We’ve been complaining to HMRC about them [not] letting current cases have some ‘transitional relief.’

“For the offset that is; [under the OPW so where intermediaries are involved], as otherwise what's the advantage or encouragement for a client to do the right thing and disclose?

“Our consultation response asked for this too. So maybe HMRC just had so many asking for offset, as it’s trying to close cases and we advisers are refusing because of this injustice.”

'Brings a little more fairness to the IR35 madness'

The Association of Independent Professionals and the Self-Employed last night said it too has been “supporting the development of an offset mechanism”.

“We believe [the offset mechanism] brings a little more fairness and common sense to the madness of the IR35 rules,” the association’s Andy Chamberlain told ContractorUK.

“We will still campaign for the rules to be scrapped -- they are deeply damaging. But the offset might just help more clients to offer outside IR35 roles.

“We are therefore pleased to see the government is committed to bring it in next year, though we will of course have to review the draft legislation.”


Despite HMRC appearing to introduce the set-off for organisations to use now, before the department officially responds to the set-off consultation, PSTAX's Ferguson cautioned that the HMRC document does talk of “if” the April 6th 2024 changes go ahead.

But based on having the set-off pointed out to her by HMRC, and given the provided document was a general HMRC document not tailored to the end-user, “this very much confirms to me” that an end to double-taxation will be introduced for the 2024/25 tax year, she said.

UPDATE: An HMRC spokesperson said: "The fact we were looking at this is not new. We launched a consultation in April on introducing a set-off for deemed employers who face liabilities where there has been non-compliance with the off-payroll working rules.

“We’re still considering the feedback and plan to publish a response by the end of the year. In the meantime, we are writing to a small number of customers with open compliance enquiries, informing them that, subject to certain conditions, they may be able to pause their settlement whilst this remains under consideration.”

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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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