A significant number of construction businesses operate via a personal service company (PSC) (or other intermediary). Under the current off-payroll working rules (IR35), the end client or agency potentially has the responsibility of assessing the employee status of PSCs to determine if they have to pay income tax and NIC on their behalf. If they fail to determine the employee status correctly, they can be liable to unpaid tax and penalties, even if the worker’s PSC has paid tax on that income.
From 6 April 2024, new provisions will apply in respect of PAYE assessed on deemed employment payments made on or after 6 April 2017 (i.e. it is backdated to when the off-payrolling rules were first introduced for public sector engagers).
In such cases, the deemed employer’s PAYE liability will be reduced by an amount of Income Tax or Corporation Tax that is estimated to have already been paid by, or assessed on, the worker and the intermediary in relation to the engagement. The tax treated as already recovered will be the best estimate that can reasonably be made by an officer of HMRC in respect of the Income Tax or Corporation Tax already paid or assessed. This should avoid HMRC collecting tax twice.
If you need any advice in relation to IR35, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.