If a contractor’s personal service company (PSC) and the agency or client that has engaged them have paid tax on the value of the same contract, the PSC and/or contractor should be able to reclaim any duplicated taxes, according to accountancy and tax experts.
Workers and PSCs are in principle entitled to claim back the tax that they paid when a public body is subsequently found to have been non-compliant. It looks like the same could be the case for the private sector.
HMRC as it stands can’t offset the historic taxes against any taxes already paid by the worker or PSC, which means the worker and PSC are automatically entitled to reclaim the tax.
“If they do, in effect, they will not have paid taxes on the income they received from that public body because these will be borne entirely by the public body that made the incorrect status decision. However, HMRC does not actively promote this and it is unclear how many workers reclaim their
taxes in practice,” Accountancy Web reported.
National Audit Office’s (NAO) report on Investigation into the implementation of IR35 tax reforms has highlighted that a similar reformed version of IR35 applies to contracts where the engager is a large or medium-sized company in the private sector from 6 April 2021, with the implementation postponed from April 2020 due to the Covid-19 pandemic.
Do contractors still need IR35 insurance?
Dave Chaplin of contractor consultancy IR35 Shield has stated in a LinkedIn post that tax experts are “still flummoxed” about these findings. But, essentially it means this:
- Under Off-payroll – the contractor has ZERO tax liability.
- If an Outside IR35 contract is successfully overturned by HMRC, the contractor gets a tax refund.
“Now, in insurance terms, this means the contractor has no insurable interest. Therefore, any insurance policy they have bought, to protect against IR35 tax risk under the new rules, is void in law,” according to Chaplin, who has been in talks with policymakers over the past two years on developments close to the subject.
Chaplin cites what the Association of British Insurers says on the matter:
The interest that a person has in something such as a particular property or another individual, which means that the person would suffer a loss should that property or individual be harmed. In insurance law, you can only buy insurance for something or someone in which you have an insurable interest.
“For IR35, new rules, the client or agency holds the tax risk – and only they can buy a valid insurance policy. Don’t get duped into buying snail oil,” said Chaplin.