Construction industry workers who operate through their own personal service companies can be caught by IR35. This can result in tax being paid twice on the same income, once as a CIS deduction and once as PAYE on a deemed payment. Although the CIS deductions can be repaid once the company has submitted its accounts, the timing of the repayment may cause cash flow difficulties for those affected.
On 4 April 2001, the Revenue announced details of a new extra-statutory concession (ESC C32), to avoid this double taxation trap. If the company claims its repayment of CIS deductions before 31 January following the end of the tax year for which the deemed salary payment has been calculated, the double taxation may be avoided. The service company must inform HMRC, when it sends in its end-of-year employer’s return, that it wants to defer paying the tax due under the IR35 rules. It will then be able to set the CIS repayment against the PAYE and NIC deductions it owes, so that it will not have to pay two lots of tax.
Where such a claim is made (and accepted) then this extra-statutory concession means that interest will not be charged on any late-paid tax and NICs due under the IR35 rules to the extent that that late-paid tax and NICs is matched by the corporation tax repayment due to the company, up to the date of the repayment of the corporation tax.