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 of the above trigger events have 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, i.e., it is ‘outside’ of the OPW rules, but the worker should have been treated as ‘inside’ the OPW rules. In these circumstances the deemed employer will not have deducted income tax and NICs from deemed direct payments to the intermediary because there was no Status Determination Statement instructing it to. 

For clients who are public authorities, where liabilities are final and conclusive 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 liabilities are assessed 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 that are final and conclusive before 6 April 2024, a set-off will not be available. HMRC seeks 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. 

Guidance on making a repayment claim for tax can be found at  https://www.gov.uk/self-assessment-tax-returns/corrections and for NICs at https://www.gov.uk/claim-national-insurance-refund

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

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