Contractors’ Questions: Is the off-payroll rules offset going to be worth it or worrying?

Contractor’s Question: Is the IR35 offset consultation worth it or worrying, because from a skim-read it seems that engagers and agencies are going to be bigger beneficiaries than contractors?

Expert’s Answer: I assume you are asking as a contractor, and it’s tricky to answer your question when we don’t have the outcome of the HMRC consultation, which closed last month.

Nonetheless, beside from this caveat that we really ought to wait for the final detail, our expectation at this stage is that the offset mechanism will go ahead as proposed -- from April 6th 2024.

A taxman who's listening, in part...

Agreeing to parachute a set-off into the off-payroll rules shows HMRC is finally listening.

I say ‘finally’ because the rules which the set-off will apply to have been in force since April 6th 2017 in the public sector, and since April 6th 2021 in the private sector. So is HMRC listening? Only partly perhaps.

The fact that this consultation was even needed highlights what a tangled mess the off-payroll working rules are. But I’d caution contractors against thinking that HMRC moving to include this mechanism is an acknowledgement by the tax authority that its rules are too complicated to be fit for purpose.

Botched

Our sense at this stage is that, from April 6th 2024, the UK contracting sector will likely be dealing with more legislation -- the set-off -- on top of already botched legislation.

That said, if it goes ahead, the huge reduction in potential liabilities should be a great comfort to both engagers and agencies, as it will apply right back to April 6th 2017.

Could we be seeing more outside IR35 contracts or even the lifting of blanket bans as a result? Very possibly.

Clients must get off-payroll things right from the get-go

Beware though that the proposal sets out that HMRC penalties will still apply to the entire tax/NIC liability, not the amount after off-set.

And while the set-off would make the prospect of an audit by HMRC less daunting for end-users, it does still highlight the need to get things right from the get-go, potentially saving an awful lot of admin, and information-gathering should an inspector call, particularly if you intake a high volume of contractors.

Plus, engagers could be waiting for up to two years before an HMRC off-payroll investigation is concluded. For those already under scrutiny, here’s hoping you can delay any settlement until on or after April 6th 2024! Tied to that, the set-off will represent a bitter pill to swallow for any clients who have already settled.

Downsides for contractors

As for contractors, well, your details will be handed to HMRC on a plate. While the concept of an individual contractor’s information being passed to HMRC is nothing new, HMRC will be delving through your records to ensure returns have been submitted and tax paid.

As a contractor, your own “reasonable care” and ‘due diligence’ must therefore continue, and you must maintain adequate records to save yourself a headache if you are ever contacted to facilitate a client’s offsetting.

In the meantime, all eyes should be on HMRC’s incoming reply to the responses to the offset consultation which many of us have submitted in relation to this seminal issue.

The expert was Charlie Hemsworth, senior tax consultant at Bauer & Cottrell.