Autumn Statement 2023: ‘Be careful what you wish for,’ now that the IR35 offset is secure, contractors warned
The gloss is already starting to peel off what one contractor sector adviser had hailed as the “only good news” of Autumn Statement 2023 -- the IR35 offset.
In fact, despite HMRC quietly saying yesterday that PSCs can now report ‘blanketing’ clients to its officials, the set-off mechanism is being characterised as not all it was cracked up to be.
Qdos’s Nicole Slowey says the offset’s confirmation “wasn’t the news [on the IR35 front that many…were hoping for,” (although perhaps only because the hopes were for OPW repeal).
Markel’s Danny Batey says the “actual detail” yesterday from HMRC of what the “mechanics of the calculation” will include are a bit “light” (although, overall, he said he backs the set-off).
'Only good news'
And even ReLegal Consulting’s Rebecca Seeley Harris, who said it is AS’s “only good news” and insists it must apply to stop dual taxation, reminds that the offset only helps the IR35-caught.
“[Where] the client does get caught under OPW, at least the taxes that have already been paid will be offset; the bad news is -- you have to get caught for this to apply,” she acknowledges.
Graham Webber of WTT Consulting is the most dubious of the set-off mechanism, waved through yesterday at chapter 5.50 of Autumn Statement 2023.
'Be careful what you wish for'
“Contractors should be careful about what they wish for”, he began, ahead of sharing his reservations in the shape of a series of questions.
“A law that allows tax paid by one taxpayer to be regarded as tax paid by another?
“[If] tax paid by one party….is [to be used from April 6th 2024] to frank the liability of another, the capacity for confusion and dispute [will be] huge.
“What if the contractor/PSC has paid no NICs, but the deemed employer is liable to NICs?
“What if the contract rate is inclusive of employer NICs, but it now falls on the deemed employer?
“[And] what happens if the NI is not collected for more than six years; does the limitation on collection kick in?”
Taking to LinkedIn, Webber said that, at the very least, the legislation to let deemed employers offset tax and NIC already paid by a PSC against their own liability, will be “interesting”.
But he’s also clearly concerned. “For me the worrying element is the unilateral capacity of HMRC to now decide that tax paid by one legal tax personality can be used to offset the liability of another,” WTT’s tax director wrote.
“What is to stop HMRC using that precedent to look at any situation, and decide to chase the most vulnerable person in that chain of payments?”
Clearly not aware of Mr Webber’s concerns, Qdos’s Ms Slowey said the “madness” of HMRC failing to offset tax already paid by a contractor when it hands a business a tax bill for misapplying the rules, “hasn’t been lost on anybody.”
Looking more at the practicalities is Seb Maley, also of Qdos (although he condemned the taxman being able to tax twice under IR35 as “illogical, immoral and outright daft”).
“Ultimately, this [set-off mechanism] will reduce the perceived risk of engaging contractors,” Mr Maley said of end-clients, following Autumn Statement.
“And [it] may see businesses start to rethink short-sighted, needless contractor bans.”
'Alleviate financial burden'
A similar calculation about the IR35 offset was issued last night by Moore Kingston Smith, a chartered accountancy firm.
“This change will help to alleviate some of the financial burden and risk that organisations encounter because of the off payroll working rules when engaging contractors.
“And [the set-off will] reduce complexity for the workers themselves,” the chartered firm said.
“However, other fundamental complexities within the [OPW] rules persist, particularly those relating to [determinations].”
'Non-compliant clients can now be shopped to HMRC'
But in a sign HMRC is taking complexities for PSCs on board, the department says its officials are now up for receiving tip-offs about “non-compliant clients.”
HMRC said the 36 organisations which responded to its offset consultation said a route to report end-users breaching the off-payroll rules, including by blanketing, ought to exist.
Matt Fryer of accountancy firm Brookson, who spotted the new development last night on HMRC’s reply to consultation respondents, believes the service is bound to turn contractors’ heads.
“Contractors can now take action against clients issuing blanket IR35 determinations by reporting them directly to the HMRC,” said Fryer, pointing to the page which HMRC directed respondents to.
“This is the first time I have seen this in writing from HMRC. It seems significant and people within the contractor sector should surely be aware of it.”
Found in HMRC’s response to respondents under ‘Responses outside the scope of the consultation,’ the link to report blanketing appears above the tax office saying it will next publish “draft guidance” about the offset, in light of stakeholder “questions around the practical application” of the mechanism.
'De-risking for clients'
“[It is] good news,” insisted Brookson’s Mr Fryer, almost as if to reassure those with doubts and queries about the set-off. “Commercial benefits for agencies [and] de-risking for clients [are the upshot]”.
The accountancy firm’s managing director, Fryer added: “The offset rule…will significantly reduce the financial risk associated with outside IR35 roles, giving end-hirers the opportunity to reassess their policy for engaging with personal service companies. And it could [even] result in the removal of blanket bans on PSCs or blanket ‘inside’ IR35 determinations.”