Recruitment services companies will benefit from new Regulations which address the over-collection of tax when the off-payroll working rules have not been complied with.
If HMRC determines that an end-user client has incorrectly assessed the tax status of an off-payroll contractor supplied via a recruitment services company as self-employed instead of deemed employed, the recruitment services company becomes liable for the income tax and employee's National Insurance contributions (NICs) that it should have deducted from the contractor's fees, as well as employer's NICs. If the contractor has already paid some tax and NICs on the same income, this results in HMRC collecting more tax than is due. Where this is the case, under current legislation, HMRC cannot set off amounts of tax and NICs already paid by a contractor against the tax liability of the deemed employer recruitment services company. Only the contractor can claim a refund of overpaid tax.
When the new Regulations come into force on 6 April 2024, subject to certain conditions, a deemed employer recruitment services company will be able to offset any overpaid tax against tax already paid by the contractor. Although this new tax off-set is good news for recruitment services companies, it does serve as a reminder to them to make sure that their end user clients are assessing contractor status correctly under the off-payroll working rules, thus ensuring that any resulting tax is accounted for correctly at the right time without the need to go through the off-set process at a later date.