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Shazia Imtiaz

General Counsel, APSCo

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We remain adamant that off-payroll needs a reform to address the issues – something that we hope will be factored in as a follow-up to the set off mechanism

IR35 off-payroll set off mechanism: why more is needed

IR35 off-payroll set off mechanism: why more is needed


Shazia Imtiaz shares her views on why further reform of off-payroll by HMRC is needed

The recent launch of a consultation by HM Revenue and Customs (HMRC) on a new set off mechanism for off-payroll was welcome news. Since its rollout to the public and private sectors, IR35 off-payroll has presented a range of challenges, particularly for staffing companies and deemed employers facing the financial implications of double taxation. The current law is the Income Tax (Earnings and Pensions) Act 2003, Chapter 10, Part 2 of the Income Tax (Earnings and Pensions) Act 2003 and Regulation 72E-G, and the Income Tax (Pay As You Earn) Regulations 2003.

Since 2017, there has been no mechanism to either refund the contractor or the fee payer for tax paid twice on a status reassessment, meaning double taxation. APSCo has been arguing for an urgent resolution to this issue for a number of years as arguably the application of the rules is in breach of HMRC’s charter to tax fairly.

HMRC are now applying the legislation in a way so as to notify the worker that they may be entitled to claim overpayment relief, namely a tax refund, to avoid double taxation. However, in effect, this may mean the contractor pays no tax on an assignment and there is no mechanism for set off against tax payments made by the deemed employer (which is often the recruiter).

The need for further reform

However, we at the Association of Professional Staffing Companies (APSCo) remain of the view that further reform of off-payroll is needed. The UK is experiencing significant skills shortages and while recruitment is slowing as economic uncertainty prevails, access to highly skilled professionals remains a concern.

The flexible labour market will play a role in strengthening the country’s skills in sectors including technology, engineering and the sciences. However, we know that off-payroll has already had a detrimental impact on the contract market. Indeed, when the regulation was first extended into the private sector, we saw many contractors moving into full-time roles out of necessity. In October 2021, shortly after IR35 off-payroll came into effect, the Association of Independent Professionals and the Self-Employed (IPSE) revealed that around 35 per cent of contract professionals had left self-employment since off-payroll was introduced.

There are also ongoing issues with HMRC’s check employment status for tax (CEST) tool, which has faced criticism for its confusing wording, as well as allegedly resulting in incorrect assessments for some. While there were rumours towards the end of last year that a new and improved tool would be launched, we haven’t yet seen any progress on this matter.

The tool needs to be fit for purpose and ensure that incorrect determinations are not being made. If legitimate contract professionals are inadvertently finding they are falling within IR35 off-payroll due to incorrect determinations, the aforementioned brain drain of contingent workers will continue.

It’s also important to consider the sheer scale of the yield from IR35 off-payroll which, according to the Chair of the Economic Affairs Committee in March 2023, had doubled previous estimates, standing at £1.5bn per year. These figures suggest that it is highly likely that many genuinely self-employed professionals are being forced to work via payroll due to employers’ overly cautious approach to assessing assignments as ‘inside IR35.’

This particular challenge is likely to have far more impact on highly skilled workers over 50 deciding to stay or leave the labour market following the pension changes announced in the Budget which, given the Chancellor’s commitment to encouraging this segment of the population back into employment, is counter-intuitive. Self-employment through a personal service company (PSC) is the type of flexible, well-paid work that is highly attractive to the skilled professional over 50s labour force and is a route to market that can keep skilled workers motivated well into their 60s.


There needs to be clarity – written into statute law – around the definitions of employment status and accommodations are required to support the highly skilled flexible labour market in a fair manner. As it is currently defined, off-payroll legislation is, in APSCo’s view, unsatisfactory. There is a lack of clarity around highly-skilled self-employment in particular, leading to recruitment firms having the uncomfortable role of being the deemed employer, while not being responsible for the employment status decision. We remain adamant that off-payroll needs a reform to address the issues – something that we hope will be factored in as a follow-up to the set off mechanism.

Shazia Imtiaz is general counsel at APSCo