Closed consultation

(Draft) ESM10037 guidance: Off-payroll working – setting off Tax and National Insurance contributions already paid: When the legislation applies and commencement

Published 25 January 2024

The purpose of the legislation is to enable HMRC to direct that an amount of tax and National Insurance contributions (NICs) paid or assessed by a worker or an intermediary on income from an engagement falling within the off-payroll working (OPW) rules can be set off against a liability of a deemed employer arising from a deemed direct payment.

The set-offs legislation will apply from 6 April 2024 for deemed direct payments made on or after 6 April 2017. The set-offs legislation will only apply where a trigger event occurs on or after 6 April 2024. A trigger event is where:

• HMRC serve notice of a determination to a deemed employer under regulation 80 Income Tax (PAYE) Regulations 2003 that includes tax on income from the OPW engagement
• HMRC receives a trigger letter of offer
• Where HMRC considers it would be impractical to recover by way of a regulation 80 determination, HMRC may serve a recovery notice under Chapter 5, Part 4 ITEPA 2003

If none of the above trigger events has occurred, HMRC will not be able to give a set-off.

A PAYE liability will arise where a client has incorrectly determined that the OPW rules do not apply to an engagement, for example, it is ‘outside’ of the OPW rules, but the worker should have been treated as ‘inside’ the OPW rules. In these cases the deemed employer will not have deducted Income Tax and NICs from deemed direct payments to the intermediary because it did not receive a Status Determination Statement instructing it to.

For clients who are public authorities, where cases are settled on or after 6 April 2024, set-offs will apply to deemed direct payments made on or after 6 April 2017. This is because the rules at Chapter 10, Part 2 ITEPA 2003 commenced on that date for those entities.

For medium and large-sized clients not in the public sector, where cases are settled on or after 6 April 2024, set-offs will apply to deemed direct payments made on or after 6 April 2021. This is because the rules at Chapter 10, Part 2 ITEPA 2003 commenced on that date for those entities.

Pre-6 April 2024

For liabilities assessed by HMRC before 6 April 2024, a set-off will not be available. HMRC seek to recover the Income Tax and NICs arising from the deemed direct payment from the deemed employer. Where the client or deemed employer has provided sufficient worker/intermediary information, HMRC will notify the worker and the intermediary that they are entitled to a refund of tax, NICs and corporation tax. The worker and intermediary may then make claims for repayment of the Income Tax, NICs and corporation tax paid on the income which should have had PAYE operated on it by the deemed employer.

It should be noted that any cases closed before 6 April 2024 will not be re-opened and considered for a set-off.

Post-6 April 2024

From 6 April 2024, the liability for Income Tax and NICs arising from the deemed direct payment will continue to be the responsibility of the deemed employer. Where HMRC is satisfied that the conditions for a set-off have been met and makes a direction, the liability of the deemed employer will be reduced by the set-off to take account of Income Tax, NICs and corporation tax paid on the income from the OPW engagement by the worker or intermediary.

Where HMRC decides that a set-off is not allowable, it will contact the deemed employer and inform them of the decision. HMRC will not provide reasons for not allowing a set-off as this would potentially reveal confidential information about a worker or an intermediary.

The process for set-offs from 6 April 2024, where there is a PAYE liability arising from a deemed direct payment, will be:

• client or deemed employer to provide relevant worker/intermediary information
• HMRC identify worker and intermediary, where possible
• HMRC to identify whether relevant tax returns have been submitted
• HMRC to identify an amount of tax/NICs paid or assessed by the worker or intermediary
• HMRC to calculate, where appropriate, an amount of set-off, and provide the deemed employer with a revised liability
• HMRC will notify the worker or intermediary of the outcome and restrict reliefs on the same tax

The following pages cover the above areas of the process in greater detail.