HomeTaxContractors able to claim back tax if engager falls foul of IR35

Contractors able to claim back tax if engager falls foul of IR35

Contract workers could claim back tax they have paid if HMRC is to find a business has incorrectly applied the IR35 legislation.

HMRC enforced IR35 reform in April 2021, handing medium and large businesses the responsibility for determining IR35 status, with fee-paying parties picking up the liability.

This mirrored changes introduced in the public sector in 2017.

Following IR35 reform, businesses who have wrongly classified contractors as outside IR35 since last April could face having to pay all of their PAYE and National Insurance contributions on that contract if HMRC successfully challenges them on status. 

This is a scenario that numerous government departments have found themselves in, with HMRC handing out £263m worth of tax bills and penalties in the public sector due to non-compliance.

HMRC does not factor in tax already paid by contractors

But, as reported by The Financial Times, when demanding these tax liabilities from businesses, HMRC does not offset the Income Tax and Corporation Tax already paid by the contractor, who can claim this back.

Dave Chaplin, the chief executive of tax compliance company, IR35 Shield, told the FT: “We now have this bizarre situation where the whole policy was about getting contractors to pay more tax, and now they could end up paying no tax.”

Situation will create a ‘massive problem’ for HMRC

Seb Maley, CEO of the contractor insurance firm, Qdos, added: “As made explicitly clear within the NAO’s investigation into IR35 reform [see below], HMRC has no plans to deal with this subject as issues stand. 

“Left unresolved and HMRC will net more tax than it’s actually owed, creating a massive problem when contractors quite rightly start the process of reclaiming the tax they’ve already paid to the Treasury.”

Sign up to receive the latest news

    Related News