HMRC to consult on IR35 offset of taxes and new rules for CIS gross payment qualification

Following huge criticism from the Public Accounts Committee on the way HMRC assess and collect underpayments of PAYE and National Insurance Contributions where engagers have failed to assess workers correctly, HMRC have now announced a consultation that will look at how credit can be given for taxes already paid by the intermediary or individual.

Currently, we have the situation whereby HMRC seek to recover all PAYE and NIC from a deemed employer which has, in the opinion of HMRC, failed to apply the off-payroll rules correctly. No consideration or relief is given by HMRC for any taxes that the intermediary or worker has already paid on the same income, therefore effectively allowing HMRC to double tax that income.

Also, HMRC were happy for the intermediary and worker to apply for a refund of the taxes they had paid, meaning therefore that the deemed employer had paid the taxes on behalf of the intermediary and worker.

Clearly, this cannot continue and HMRC have issued a consultation document aimed at looking for workable solutions to allow any calculation of underpaid PAYE and NIC where a deemed employer has failed to apply the off-payroll rules correctly to be able to take account of taxes already paid on the same income.

This should stop the deemed employer overpaying any liability and also preclude the ability of an intermediary and worker obtaining a refund of taxes that, in some part, they should have paid.

The consultation can be found at https://www.gov.uk/government/consultations/off-payroll-working-calculation-of-paye-liability-in-cases-of-non-compliance/off-payroll-working-ir35-calculation-of-paye-liability-in-cases-of-non-compliance

The second consultation looks at whether HMRC should consider bringing VAT failures into its current compliance checks which are used to decide whether a sub-contractor in the construction industry scheme, can allowed to be paid without deduction of CIS tax – known as gross payment status.

At the moment, applicants for gross payment only need to meet turnover, in-business, and compliance tests, which look at the applicant’s tax compliance history over the previous 12 months. These tests have only looked at personal tax, company tax and PAYE, so never previously included VAT compliance.

The proposals are to include the previous 12 months VAT compliance within the compliance test, and this consultation seeks comments on the potential impact of such change.

The consultation also wishes to consider whether the construction industry scheme rules can be relaxed for landlord/tenant payments where the scheme can become burdensome by creating unnecessary administrative requirements such as multiple reporting. It seeks proposals from stakeholders on how these burdens can be reduced or eliminated.

The consultation can be found at https://www.gov.uk/government/consultations/construction-industry-scheme-reform/consultation-construction-industry-scheme-reform