Clause 17 - PAYE regulations: special types of payer or payee

Finance Bill – in a Public Bill Committee at 10:30 am on 16 January 2024.

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Question proposed, That the clause stand part of the Bill.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clause 17 makes changes to address a potential overcollection of tax and national insurance contributions by HMRC to resolve an unfairness in the tax system. This will allow HMRC to set off taxes already paid by the worker and their intermediary against the pay-as-you-earn liability of another organisation in the supply chain, preventing double taxation and ensuring that the cost of the liability is shared more fairly between the parties involved.

The off-payroll working rules, commonly known as IR35, were first introduced in 2000. They set out that, where an individual is working like an employee, they should pay tax like an employee, regardless of whether they are working through their own intermediary. Under the current rules, where an organisation is found by HMRC to have incorrectly determined an off-payroll worker as self-employed when they should have been employed, it becomes liable for taxes and national insurance contributions that should have been deducted, at source, from the fee paid to the worker. Current legislation does not allow HMRC to rectify that by setting off taxes already paid by the worker and their intermediary against the PAYE liability of the organisation.

The changes made by clause 17 will give HMRC the power to set off taxes already paid by a worker and their intermediary against the subsequent PAYE liability of the organisation. That aims to address the potential overcollection of tax and national insurance contributions in cases of non-compliance with the off-payroll working rules. It also ensures that the cost of the liability is shared more fairly between the deemed employer and the worker.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

As we have heard from the Minister, clause 17, on PAYE regulations, aims to give HMRC the power to make regulations that will enable it to set off amounts of tax already paid by a worker and their intermediary, on income from engagements under IR35 rules, against a subsequent PAYE liability of their deemed employer. As the Government’s policy paper on this matter sets out, the core aim of the measure is to address overcollection of tax and national insurance contributions where there are cases of non-compliance with off-payroll working rules.

We in the Opposition will not be opposing this clause. However, we note that the provision comes into effect from 6 April, and will also apply to deemed direct payments made as far back as “on or after” April 2017. The Chartered Institute of Taxation had argued for this set-off to be legislated for since the off-payroll working rules were first introduced seven years ago. Could the Minister explain why it has taken the Government so long to act after the problem was first identified by a respected industry body?

Photo of Carol Monaghan Carol Monaghan Shadow SNP Spokesperson (Education), Shadow SNP Spokesperson (Science, Innovation and Technology) 10:45, 16 January 2024

To follow on from that, many of us have had a number of people—constituents and otherwise—getting in touch to say that they have fallen foul of IR35. Are there plans to apply the measures retrospectively? If so, how far back are the Government planning to do that?

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I thank hon. Members for their comments. As I say, the measures are separate from the broader debate on IR35, which we have all heard about as constituency MPs. The legislation is complex, and it is right that we work through these complex issues thoroughly to address them properly. HMRC has undertaken a significant amount of informal consultation with key stakeholders to explore a legislative solution to resolve this issue. At the end of the day, we are introducing legislation to address concerns about the double taxation that some people face, which is blatantly unfair.

The Government are grateful for the constructive feedback we have had, which has resulted in the measures being included in the Bill. It is a positive outcome that addresses concerns raised by businesses and hon. Members that HMRC would collect too much tax, and that there are errors in complying with the off-payroll working rules. We have discovered that, so it is right that we have taken action. I therefore urge that the clause stand part of the Bill.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

My understanding is that the measures will not be retrospective, but I will write to the hon. Member for Glasgow North West or explain more in a later response if I am incorrect.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill.