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Open Consultation reply: Navigating HMRC’s Proposed Tax Changes

Recap on the consultation change:

In April 2023, the government initiated a consultation process to gather opinions on a potential legislative amendment enabling HMRC to offset tax and National Insurance Contributions (NICs) paid by a worker against the deemed employer’s PAYE liability. The objective was to address the existing double taxation issue. Fast forward to November 2023, and the Autumn Statement brought forth a decisive announcement: the legislative change would officially take effect from 6 April 2024, inserting a new power into the Income Tax (Earnings and Pensions) Act 2003.

In January, HMRC commenced a new technical consultation, inviting stakeholders to refine the legislation and its accompanying guidelines. As the consultation deadline of 22 February 2024 loomed, stakeholders, including our organisation, weighed in on the proposed changes.

Our response to the consultation:

In our recent response to the open consultation regarding proposed changes to tax legislation, we voiced our support for the initiative aimed at rectifying the issue of double taxation. We firmly believe that the proposed approach represents a fair and equitable solution to a systemic problem within the current tax regime. The underlying principle of the UK tax system, in our view, is to align with taxpayers’ needs while safeguarding revenue for the Exchequer. Central to this proposed change is HMRC’s access to data on taxes paid, which forms the cornerstone of the proposed offsetting mechanism. Without leveraging this data, disparities and injustices in taxation would persist unchecked.

However, there are areas the proposal and draft legislation have not addressed and we’d like to take this opportunity to signpost these gaps and seek clarification:

  1. Treatment of Businesses Under Compliance Assessment: Our primary concern pertains to businesses currently undergoing compliance assessments with HMRC. We question whether these entities will benefit from the proposed offsetting mechanism. We caution against the potential risk of delays in finalising ongoing enquiries, which could impede revenue collection for the Treasury. We advocate for a compromise solution that aligns with HMRC’s existing practices in other areas, suggesting retroactive application of offsets for settlements initiated before 5 April 2024 but not yet concluded. Furthermore, we recommend updating HMRC guidance to reflect the applicability of offsets to ongoing enquiries.
  2. Impact on Role-Based Determinations: Another significant consideration relates to HMRC’s guidance on role-based determinations. While clients may adhere to these guidelines, discrepancies in determinations could arise during subsequent enquiries. We propose that if HMRC deems a role-based assessment incorrect for one or more intermediaries in a role, the offsetting mechanism should be extended to each intermediary. This approach would ensure that clients benefit from the proposed changes across multiple engagements.
  3. Information Provision and Realistic Timeframes: The successful implementation of the offsetting mechanism hinges on the ability of clients to provide intermediary information to HMRC. However, in many cases, clients are not the direct engagers of intermediaries, necessitating collaboration with their supply chains. We stress the importance of establishing realistic and reasonable timeframes for clients to furnish intermediary information. It’s crucial to acknowledge the complexities involved in this process and ensure that adequate support is provided.

These unresolved issues underscore the need for further dialogue and refinement of the proposed legislation. We remain committed to engaging constructively with HMRC and other stakeholders to ensure that the final framework addresses these concerns and facilitates a smoother transition to the new tax regime. Together, we can work towards a fairer and more transparent tax system that benefits all stakeholders involved.

If you have any questions on this subject or want to discuss the effect it may have on your business, please don’t hesitate to get in touch.