Following discussions with stakeholder groups, HMRC has issued a statement on the off-payroll working rules due to come into effect next April which clarifies its interpretation of the conditions where the intermediary is a company.
The statement confirms that, despite the recent amendment to ITEPA 2003 s61O by FA 2020, the off-payroll working rules are intended to apply to situations where there is no employment or agency worker relationship between the worker and the client or an agency or other third party in the labour supply chain, and the worker's services are provided through their own intermediary. Where a worker is already subject to PAYE on all of the income from an engagement as an employee, other than with their own intermediary (usually a personal service company), HMRC does not intend the off-payroll rules to apply.
The statement follows concerns that the amended conditions could, in certain circumstances, capture a wider range of companies providing a worker's services than personal service companies: mainly umbrella companies, but also employers seconding employees and agencies providing workers. HMRC said the amendment to the rules was made to protect against arrangements put in place to side step the new ‘material interest’ rules. However, they were never meant to stop a compliant umbrella company from operating as it does today. Stakeholders are advised to follow HMRC’s published guidance when preparing for the reforms. It is possible that HMRC will, subject to ministerial approval, make legislative changes to remove the potential unintended consequences described above.
HMRC’s statement followed a meeting between the department and stakeholders. Penny Simmons, a tax risk expert at Pinsent Masons who attended the meeting, said: ‘It was a very constructive discussion. HMRC understood the issue and was steadfast in its intention to review what action is needed to ensure that the legislation works as is intended and all stakeholders – businesses, agencies, umbrella companies and contractors – receive the clarity and certainty that they need before the new rules take effect in April.’
The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a personal service company (PSC), if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.
The rules are due to change from 6 April 2021. From this date, engaging businesses will be made liable for determining whether the IR35 rules apply. They will also be required to operate PAYE and pay employers’ NICs. The changes will not apply to small businesses which engage contractors through PSCs.
The changes were originally due to take effect this April, but the start date was delayed a year as a result of the coronavirus pandemic.
‘Stakeholders should be reassured by both the statement that HMRC issued yesterday and the speed with which the statement has been published,’ Simmons said.
Following discussions with stakeholder groups, HMRC has issued a statement on the off-payroll working rules due to come into effect next April which clarifies its interpretation of the conditions where the intermediary is a company.
The statement confirms that, despite the recent amendment to ITEPA 2003 s61O by FA 2020, the off-payroll working rules are intended to apply to situations where there is no employment or agency worker relationship between the worker and the client or an agency or other third party in the labour supply chain, and the worker's services are provided through their own intermediary. Where a worker is already subject to PAYE on all of the income from an engagement as an employee, other than with their own intermediary (usually a personal service company), HMRC does not intend the off-payroll rules to apply.
The statement follows concerns that the amended conditions could, in certain circumstances, capture a wider range of companies providing a worker's services than personal service companies: mainly umbrella companies, but also employers seconding employees and agencies providing workers. HMRC said the amendment to the rules was made to protect against arrangements put in place to side step the new ‘material interest’ rules. However, they were never meant to stop a compliant umbrella company from operating as it does today. Stakeholders are advised to follow HMRC’s published guidance when preparing for the reforms. It is possible that HMRC will, subject to ministerial approval, make legislative changes to remove the potential unintended consequences described above.
HMRC’s statement followed a meeting between the department and stakeholders. Penny Simmons, a tax risk expert at Pinsent Masons who attended the meeting, said: ‘It was a very constructive discussion. HMRC understood the issue and was steadfast in its intention to review what action is needed to ensure that the legislation works as is intended and all stakeholders – businesses, agencies, umbrella companies and contractors – receive the clarity and certainty that they need before the new rules take effect in April.’
The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a personal service company (PSC), if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.
The rules are due to change from 6 April 2021. From this date, engaging businesses will be made liable for determining whether the IR35 rules apply. They will also be required to operate PAYE and pay employers’ NICs. The changes will not apply to small businesses which engage contractors through PSCs.
The changes were originally due to take effect this April, but the start date was delayed a year as a result of the coronavirus pandemic.
‘Stakeholders should be reassured by both the statement that HMRC issued yesterday and the speed with which the statement has been published,’ Simmons said.
