Contractors in the UK have reportedly been left with little help when it comes to knowing how to claim tax back which has been wrongly taken by employers under the new IR35 rules.
A report from the National Audit Office (NAO) states that the UK tax authority HMRC has not properly clarified the “controversial new rules” and, with no legal framework for freelancers to look to, there is nothing to help them interpret the rules.
The report, released on 10th February, said: “HMRC collects the amount due in accordance with the law at that time. It does not offset the total amount against any tax the worker or their professional services company already paid and told us this was not allowed within the current legislation. This means that HMRC collects more tax in total than is due.”
“Once the non-compliant client organisation accepts that its determinations were incorrect, the workers become entitled to claim back the tax that they and their PSCs have already paid. If they do, they in effect pay no taxes on that income because these are borne in full by the non-compliant public body.”
The report also found that the public body had “not taken reasonable care to prevent errors, including when answering questions in CEST,” HMRC’s online IR35 assessment tool, however, did not explain what it means by “reasonable care”.
Gareth Davies, head of the NAO, said: “The 2017 reforms to IR35 tax rules have achieved their primary purpose of reducing non-compliance. However, HMRC did not give public bodies sufficient time to prepare for the roll-out, and it was highly likely that mistakes would be made.”
“While key lessons were applied during the wider rollout in 2021, inherent differences in labour markets create new challenges that HMRC will need to manage for the reforms to be a success,” he added.
