The government has recently announced plans to introduce a new "offset mechanism" in the Off-Payroll legislation. This mechanism, which aims to prevent double taxation for contractors who work through their own limited companies and are subject to the IR35 tax legislation, is scheduled to be applied in the Finance Bill 2024, but will go back retrospectively to April 2017.

The new offset mechanism will be introduced following a consultation with stakeholders, including contractors, recruitment agencies, and industry bodies.

The Off-Payroll legislation, also known as IR35, was introduced to the public sector in 2017, and the private sector in 2021, requiring medium and large businesses to assess the employment status of contractors and determine whether they should be treated as employees for tax purposes. One of the significant concerns with the IR35 legislation is the potential for double taxation. This occurs when a contractor is subject to both employment taxes and corporation tax on the same income.

The consultation will seek input from stakeholders on how the offset mechanism can be implemented effectively, ensuring that it does not create any unintended consequences. The government is committed to ensuring that the IR35 legislation is fair and effective for both businesses and contractors and that any changes are made with the input of all stakeholders.

In conclusion, the proposed offset mechanism in the Off-Payroll legislation is a positive step towards addressing the issue of double taxation for contractors subject to IR35. The consultation with stakeholders is an important part of ensuring that the mechanism is implemented effectively and that any unintended consequences are avoided. The government's commitment to making the IR35 legislation fair and effective for all parties involved is encouraging, and it is hoped that the offset mechanism will provide greater clarity and certainty for contractors and businesses alike.