Contractors and their clients alike have welcomed the news that HMRC is on the verge of scrapping the controversial ‘double taxation’ of IR35 under the off-payroll working rules – in a positive development for contractors who have had their contracts cancelled as a result of these rules.

The legislative flaw sees businesses overtaxed in the event of non-compliance and has led businesses to stop engaging contract workers.

Now, it has emerged that HMRC is trialling scrapping the double taxation ahead of a possible April 2024 implementation, with some businesses currently facing IR35 investigations reportedly told that HMRC will offset tax already paid should they find an organisation non-compliant.

Under the off-payroll working rules, HMRC doesn’t account for taxes already paid by a contractor when calculating the tax liability payable by a business in the event of non-compliance. It means HMRC nets more than it’s actually owed if a business is found non-compliant. The government is currently considering resolving the issue, after holding a consultation from 27th April to 22nd June.

This development comes at a time when businesses are facing increased scrutiny from HMRC, which is progressing low-level compliance checks into rigorous investigations regarding ways organisations have determined the IR35 status of contractors.

Qdos CEO, Seb Maley, commented: “Sense seems to be prevailing and businesses caught up in IR35 enquiries will be relieved that HMRC plans to offset the tax already paid by contractors, should the tax office find them non-compliant. This is a significant breakthrough.

“The bigger picture is that HMRC seems poised to scrap this ridiculous flaw in the legislation – better late than never. By not offsetting tax already paid by the contractor when a business is hit with a tax bill, HMRC is netting more than it should.

“It’s plain wrong and has had a hugely detrimental impact on independent workers. Thousands of freelancers and contractors have had contracts cancelled because businesses are worried about the cost of non-compliance, which has been unfairly inflated by this gaping hole in the rules.

“If and when this is finally resolved, businesses will have fewer reasons not to engage freelancers and contractors – which can only be a good thing for flexible workers.”