MP asks Treasury about IR35 offset mechanism

The IR35 offset mechanism has been flagged up in the House of Commons.

In a written question to HM Treasury, Daisy Cooper MP enquired of the “expected timescale” for a response to the consultation on the offset, which was published in April.

Victoria Atkins, the financial secretary to the Treasury, replied that the official response will be published “by the end of the calendar year,” as HMRC has told ContractorUK.

'Final liabilities will take account of the offset'

But status experts are letting on that, in effect, the offset is already in play, even if the government’s response to the consultation (which closed on June 22nd) is outstanding.

“We understand that HMRC are allowing compliance checks to be paused while the mechanism for the offset is finalised, and the final liabilities will take account of this offset,” says EY’s employment taxes senior manager Nick Irvin.

Qdos CEO Seb Maley believes that, as a result, “surely; HMRC should just officially announce it now.”

'Crucial'

“[The offset] could prove crucial in convincing risk-averse businesses to reconsider contractor bans,” Mr Maley says, “and engage genuine contractors outside the scope of IR35”.

In her Commons reply to Lib Dem MP Ms Coooper, Atkins did not say the offset is already being factored in during IR35 compliance checks, even though she was speaking four days after ContractorUK broke the news that the offset is being offered by HMRC in “certain conditions.”

The Treasury minister not mentioning the setoff mechanism when she could have, might explain some of the caution doing the rounds from some off-payroll advisers.

'This 'pause' offer from HMRC'

“We already knew the proposed [offset] fix would apply to off-payroll cases already opened but settled on or after April 6th 2024, and that is not too far away in the context of how long these investigations usually take,” says Charlie Hemsworth of Bauer & Cottrell.

A senior tax consultant, Hemsworth continued to ContractorUK: “But this ‘pause’ offer [from HMRC]…is likely a result of understandable pressure by organisations nearing the conclusion of an audit.

“It’s invariably good news for engagers, but we would urge those affected to ensure they fully understand HMRC’s expectations and ‘conditions’ for pausing -- and clarify whether the pause would also apply to any accruing interest.”

'Offset mechanism conundrum'

Taking to LinkedIn last week, EY’s Mr Irvin advised: “Businesses in the middle of off-payroll working compliance checks could save huge sums by discussing this [offset] opportunity with HMRC.

“It is also worth considering ‘payments on account,’ to avoid late payment interest accruing while HMRC figure out this offset mechanism conundrum.”

Ironically, there appears to be no ‘blanket’ approach to the IR35 offset’s availability -- perhaps because the conditions for engagers to be eligible are lengthy.

Robert Burton, also of EY, but a tax controversy and risk management specialist, posted: “[This offset for probed end-users is] welcome although [it is] currently not [a] guaranteed approach from HMRC…[at least it’s not guaranteed based on the] number of ongoing compliance checks we are supporting clients with.”