Off-Payroll Working (IR35): Changes in calculation of PAYE liability in cases of non-compliance

Following pressure on HMRC to reduce the risk of double taxation on Off-Payroll Working (IR35) determinations, confirmation was provided that legislation will be in place to reduce this risk arising on or after 6 April 2024.

What was announced?

Amidst the noise of the headlines around the Autumn Statement, an important change to the Off-Payroll Working rules (more commonly referred to as “IR35”) was set out in the small print. Following a consultation earlier this year, the government has confirmed that it intends to legislate to allow HMRC to reduce the PAYE liability of deemed employers who have made an error in applying IR35 correctly to account for the tax already paid by the impacted workers through self-assessment.

When will the change take effect?

The new rule will be included in the Autumn Finance Bill 2023 and is intended to be in effect from 6^th April 2024. We will advise on this in due course. However, deemed employers should look to use this in any ongoing current settlement processes with HMRC. We are aware of HMRC already taking this into account in some cases.

How will businesses react?

Naturally, this will be a welcome development for many businesses who have long campaigned for this change to bring the rules in line with those applied to sole traders. This should ensure that the eventual settlement reached in cases of non-compliance is fair to all parties and only consists of what is actually owed. The hope is this will encourage more businesses to come forward and settle any known liabilities with HMRC now the threat of double taxation has been removed.

What does this mean for businesses going forward?

The obligations for businesses under the Off-Payroll Working rules have not changed and assessing compliance will remain a key area of activity for HMRC in the coming months.

The cost of non-compliance could still be high in some cases even with the potential mitigation offered by this announcement, it is important that businesses understand their obligations and ensure their processes that govern off-payroll working internally demonstrate reasonable care. This will be critical for managing employment costs, particularly given that other measures announced in the Autumn Statement (such as the increase in the National Living Wage) offer little respite for employers facing an increasing cost and compliance burden.

If you require any support with managing your business’s off-payroll working processes and IR35 compliance, please feel free to get in touch.