ESM10038 - off-payroll working: Setting off Tax and National Insurance contributions already paid or assessed: The set-off process
Information to be provided by client or deemed听employer听
HMRC can only consider a set-off where it is able to identify听the worker and intermediary.听This听means that a client or deemed听employer will need to provide certain information relating to workers听and intermediaries to enable HMRC to carry out checks to ensure that tax returns have been submitted,听and tax and National Insurance contributions听(NICs)听have been paid or assessed for the relevant period(s).听
As a minimum, HMRC will need the following information:听
the worker鈥檚 full name and/or NINO听
the intermediary鈥檚听name听
the 笔厂颁鈥檚听Company Registration听Number (CRN), partnership鈥檚 unique tax reference number听or VAT Registration听Number (VRN), where applicable听
If a client or deemed听employer does not provide听this information, or HMRC is听unable听to identify听the worker and intermediary, a set-off will not be given.听This is because HMRC will not be able to confirm that relevant returns have been submitted听and听that tax听and NICs听has been听paid听or assessed.听
Where HMRC can identify听the worker听and/or听intermediary,听and confirm returns have been submitted, the next step is to identify听whether relevant tax听and NICs听has been paid听or assessed in order to听direct听a set-off.听
HMRC must be able to satisfy itself that an amount of income tax, NICs,听and/or corporation tax:听
has been paid,听or听
assessed听
by either the听worker, an intermediary, or both听on income received听for services provided under an engagement to which Chapter 10, Part 2 ITEPA 2003 applies.听Payments on account are not considered听as tax paid听for this听purpose.听
If HMRC cannot identify听an amount of tax听and/or NICs听which has been paid听or assessed听by a worker and/or an intermediary,听a set-off will not be given听in respect of that worker and/or intermediary.听听
Where the conditions at regulation 72GA(1) Income Tax (PAYE) Regulations 2003听and Regulation 51 Social Security (Contributions) Regulations 2001 have been met, HMRC will consider making a direction to set-off an amount of income tax,听NICs听and corporation tax,听against a听deemed employer鈥檚 liability on听a deemed direct payment.听
Identifying听a set-off amount听
The next stage in the process is to identify听the amount of the set-off. It is important to note that not all taxes and NICs can be included in the calculation of the set-off amount. The taxes and NICs which听are available to set-off against the relevant debt, as well as those which are not, are listed below.听听
The taxes and NICs which will, where听applicable, be used to calculate a set-off are:听
Income tax on remuneration听from the relevant engagement received by the worker听听
Income tax paid on a share of partnership profits听听
Income tax paid on dividends听
Corporation tax paid on profits from the relevant engagement听
Primary Class 1 NICs (employee)听
Class 2 NICs听
Class 4 NICs听
Taxes and NICs which are not included in a set-off are:听
Secondary Class 1 NICs (employer)听
VAT听
Income tax on remuneration听not from the relevant engagement听
Corporation tax paid on profits not from the relevant engagement听
Apprenticeship Levy听
Section 455 tax charged on directors鈥� loan accounts听
HMRC will only consider making a direction where it appears that amounts of corporation tax, income tax and/or NICs have been paid or assessed by a worker and/or an intermediary听on income from an engagement to which Chapter 10, Part 2 ITEPA 2003 now applies. If HMRC cannot identify, or be able to estimate, an amount of tax and NICs paid by a worker and/or an intermediary, no set-off will be given.听听听
Method of calculation听听
Where HMRC can establish听the tax and NICs which has been paid or assessed by听a worker听and/or an听intermediary, a calculation based on actual figures will be provided. It should be noted that only tax and NICs paid听or assessed听in the relevant period(s) will be considered for a set-off in any tax year.听
In situations where HMRC can establish听that some听tax and NICs has been paid听or assessed听but cannot identify听an accurate听figure听from a relevant engagement, HMRC will make the best estimate of the amount to set-off which it reasonably can听based on the information available.听
To calculate an estimated set-off amount HMRC will use information included in the relevant tax returns of those workers and their intermediaries who are part of the compliance review. Therefore, the estimated amount will be dependent on the circumstances of the workers and their intermediaries, and听will be different for each person. HMRC will not apply a flat-rate set-off to all PAYE liabilities.听
HMRC will use the set-off figure to reduce the PAYE liability of the deemed employer and produce a revised calculation.听If HMRC cannot reasonably establish听that any tax and/or NICs has been paid听or assessed听on the relevant OPW income a set-off will not be calculated as it will not have met all of听the conditions for HMRC to consider allowing a set-off.听听
Action following calculation of set-off听
Following the calculation of the set-off, HMRC will issue a direction notice to听the deemed employer, the intermediary,听and any relevant workers.听听
Where HMRC determines听that a direction is appropriate,听a听revised calculation听taking account of the set-off will be issued听to the deemed employer.听Where a set-off听amount includes figures for听more than one worker, the deemed employer will be provided with an overall set-off amount rather than a breakdown of set-off amount per worker.听
HMRC will issue direction听notices to听all听workers听and intermediaries听included in the set-off听informing them of the amount of set-off听relevant to them, which will include details of the relevant period and which engagement it relates to. If HMRC does not hold a current address and has not been supplied with one, a set-off may still be allowed, but HMRC will not send details of this to the worker and/or intermediary.听
Where HMRC issues听a direction regarding听an amount of set-off, the worker and intermediary will not be able to claim听any repayment of the tax听paid听or assessed听on income from the relevant engagement听or set this听against other tax due.听