ESM10037 - off-payroll working: Setting off Tax and National Insurance contributions already paid or assessed: When the legislation applies and commencement

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

When the legislation will apply

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. The following are trigger events:

  • HMRC issues a regulation 80 determination to a deemed employer that includes tax on the off-payroll working income
  • HMRC receives a letter of offer
  • HMRC issues a recovery notice under the recovery from other persons provisions
  • A regulation 80 determination that includes tax on the off-payroll working income becomes final and conclusive

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

A听PAYE liability听will arise听where a听client has incorrectly determined听that the OPW rules do not apply听to an engagement, i.e., it is 鈥榦utside鈥� of the OPW rules, but the worker should have been treated as 鈥�inside鈥�听the OPW rules.听In these circumstances听the deemed employer will not have deducted income tax and NICs from deemed听direct payments听to the intermediary听because there was no听Status Determination Statement听instructing it to.听

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

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

Pre-6 April 2024听

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

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

Guidance on making a repayment claim for tax can be found at听听/self-assessment-tax-returns/corrections听and for NICs at听/claim-national-insurance-refund

Post-6 April 2024听

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,听NICs听and corporation tax听paid on the income听from the OPW engagement听by the worker and/or intermediary.听

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

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

  • Client or deemed employer to provide specific 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 and/or intermediary
  • HMRC to calculate, where appropriate, an amount of set-off, and provide the deemed employer with a revised liability; and
  • HMRC will notify the worker and/or intermediary of the outcome.

HMRC will prevent听the worker and/or the intermediary from receiving a repayment of or using the tax paid on the听relevant OPW听income听to set-off against other liabilities where it is used as part of a set-off.听

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