Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if he will make an assessment of the potential merits of a mechanism by which, under IR35 rules, the deemed payment figure declared to HMRC, as reported by the fee payer, can be altered to enable the gross employee wages to be changed for tax calculation purposes, in circumstances where the personal service company has not paid the whole fee to the employee as wages, in relation to (a) Employers National Insurance, (b) Employees National Insurance, (c) the Apprenticeship Levy and (d) Personal Income Tax.

The Off-Payroll working rules, commonly known as IR35, have been in place for over twenty years and are designed to ensure that individuals working like employees but through their own company, usually a personal service company (PSC), pay broadly the same Income Tax and National Insurance contributions (NICs) as those who are directly employed.

If the rules are determined to apply to an engagement, the deemed employer will operate Pay As You Earn (PAYE) to deduct any Income Tax and National Insurance Contributions (NICs) due from the gross wage before paying this to the PSC. The deemed employer is also responsible for paying any employer NICs and the Apprenticeship Levy, if applicable.

As PAYE has already been operated on the payment, this income will not be subject to any further taxation. How the PSC decides to remunerate the worker out of this income will therefore have no bearing on the calculation of tax that is collected through PAYE by the deemed employer on the gross wage.

Were the measure of deemed employment income under the off-payroll rules to be limited to the wages paid by the PSC to the worker, as suggested, the worker would be able to decide how much tax they wished to pay, undermining the intention that those working like employees should pay tax like employees.