Taking the risk out of hiring a professional interim solution
Under the Government’s off payroll working rules known as IR35, the same income can potentially be taxed twice. The double taxation issue occurs due to incorrect status determinations made by a business. This often results in the fee-payer – i.e the client or often an agency – being liable for Income Tax as well as NICs. This is despite the contactor having already paid a sum of tax outside of IR35.
The double taxation issue has occurred since clients have been responsible for making IR35 determinations, which has been since 2017 in the public sector, and 2021 in the private sector. In the case where a client determines IR35 is not applicable, the fee-payer can pay the contractor gross, and the contract will then pay tax on the income.
HMRC will have therefore received two sets of tax on the same income.
To help combat the issue, in 2021, the IPSE called for the introduction of a ‘set off mechanism.’ Almost two years later, and it looks like the Government is finally going to implement ways to prevent double taxation occurring. The Government launched a consultation which ran from April 27 to June 22, 2023, and welcomed views on the design of a potential legislative change to address the over-collection of tax in cases of non-compliance with IR35 rules.
Its recently published ‘Off-payroll working: Calculation of PAYE liability in cases of non-compliance’ report on the consultation, sets out a sensible plan to deal with the problem.
Tax, including salary taxes, corporation tax, and dividend tax, paid by the contractor on the income from a specific engagement, will now be deducted from the total tax due in the event that HMRC can establish the initial outside determination was wrong. As the IPSE notes, the Government admits there may be some estimates and assumptions made when calculating the tax already paid, which is realistic and sensible.
The tax paid by the contractor will also be impacted by reliefs and expenses claimed. However, in the majority of cases, the set-off will substantially reduce the liability borne by the fee-payer and it will remove the danger of double taxation.
HMRC has indicated that any changes would be implemented from April 6, 2024.
Once implemented, the reform of the double taxation issue with off-payroll working payments, will certainly take some of the risk out of hiring a professional interim. And with more and more businesses relying on taking on interim professionals as the pace of business continues to increase, anything that makes pay arrangements more efficient and effective for everyone involved has to be welcomed.
If you are looking for assistance in hiring the right interim solution for your business, then get in touch with Bailey Montagu, experts helping clients solve problems through effective interim solutions.
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