Employers within the off payroll working rules: potential problem with overpayment of tax
HMRC have just issued a consultation in connection with the off payroll working rules. This consultation is a little unusual in being aimed very closely at a specific issue, and the timeframe for the consultation is also relatively short. This leads me to suspect that HMRC are looking to implement a change in the near future and that the issue which the consultation is seeking to address is the potential for double payment of tax and NIC under the off payroll working rules.
If your worker falls within the off payroll working rules then, as an employer, you will be required in effect to treat them as an employee for PAYE purposes and to deduct PAYE tax and NIC from their deemed earnings.
It is possible that the worker may also have paid income tax and NIC on the same income either because they thought they were outside of these rules completely or they have operated PAYE and NIC through their own personal service company under the old IR35 rules.
At the moment there is no mechanism by which you can take into account any tax already paid by the worker against the PAYE tax and NIC you are due to pay to HMRC. The consultation is considering changing the law to allow tax already paid by the worker to be directly offsetable against your PAYE liability as the engager.
The practical problem that this will come up against is the tracing of those payments from the worker back to the employer/engager. Should you be in this position of having workers within the off payroll working rules, then going forward you should ensure that you keep sufficient information on your workers so that HMRC could easily trace any such taxes already paid by the worker. This could include:
- The workers name and address
- Date of birth
- National insurance number
- The name and address of their intermediary company
- The company registration number of the intermediary
- The Unique Tax Reference (UTR) of the intermediary or the worker
This is still in the consultation process so it is not yet certain whether the rules will change, but it could be worthwhile starting to gather this information as part of your take-on procedures.
