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IR35 Offset: A Brief Explanation

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IR35 Offset changes

IR35 Offset: A Brief Explanation

Wait, what? More changes to IR35? We can hear the sighs of exasperation up and down the country. However, on this occasion, it is thankfully not a major change. Assuming it passes through the proper consultation period and legal channels to be included in the next Finance Bill, the “offset changes”, actually make sense. 

What does IR35 Offset mean?

The basic change to IR35 is to negate a scenario where there is double taxation. When HMRC changes a determination, they offset tax already paid against what is then owed. It works both ways, if a PSC gets a full refund on outside IR35 taxes paid, they then have a zero-tax liability. PWC give a great overview in their tax insights article* where they summarise who will be affected.

“The different taxes and classes of NICs that would be included are:

  • Corporation tax paid by an individual’s PSC on the income from the off-payroll working engagement.

  • Income tax and employee NICs paid on a salary to the individual from their intermediary, where the salary is paid out of income from the off-payroll working engagement.

  • Class 2 and 4 NICs paid by the individual with respect to income from the off-payroll working engagement, where the intermediary is a partnership or another individual.

  • Tax paid on dividends received by a worker from their own PSC, where the dividends are paid out of income from the off-payroll working engagement.

HMRC does not intend to include the following as a part of any set-off:

  • Employer NICs paid by the individual's intermediary.

  • Class 3 NICs payments made by the individual.

  • Tax and NICs paid on any salary and dividends received by any other employees, directors or shareholders of the individual’s intermediary.”

When will this come into effect?

The offset change is not yet guaranteed to be included in the next Finance Bill, however, most of our umbrella company partners and the financial press seems to agree that it is highly likely to pass. This would then apply to all liabilities assessed on or after 6th April 2024. 

What do I need to do?

There really isn’t anything to do immediately as a contract worker or end employer other than stay up to date with progress and look out for updates from Carrington West. If you are an end employer who has been reticent to engage with contract workers due to the perceived high risk, please do reach out to us and we can fully explain the current situation, the changes and how this can help you going forward. 


Read more on IR35 here.

Our team is here to help if you have any questions about IR35.

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