HM Revenue and Customs have announced that a “technical change” will be made to IR35 in the next Finance Bill, intended to clarify the definition of an “intermediary”.
In a tax policy update published last week, the financial secretary to the Treasury announced that a “technical change” will occur to the off-payroll working rules in the next Finance Bill.
The announcement further outlined that the change will “correct an unintended widening of the definition of an intermediary, which went beyond the intended scope of policy”. It has stated that this will “ensure legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company”.
This change is linked to the confusion surrounding the status of umbrella companies. New amendments to IR35 led to the interpretation that umbrella companies could be classed as an “intermediary”. HMRC defines an intermediary as “any person who makes arrangements for an individual to work for a third party or pay for work done by a third party”.
Dave Chaplin, CEO and founder of IR35, a compliance solution provider company, previously drew attention to the errant clause, highlighting the danger this posed for the umbrella company sector:
The legislation requires that remuneration is treated for employment tax purposes before reaching the intermediary, meaning the agency needs to process the tax deductions, effectively rendering the role of the umbrella company redundant. This poses numerous challenges for the entire supply chain.
Therefore, the amendment to be made to IR35 which concludes that umbrella companies would not be considered an intermediary has been welcomed.
Speaking to Recruiter magazine, Dave Chaplin commented on this news, stating:
It’s encouraging that the Treasury has finally vindicated the conclusions we reached in September, namely that the Finance Act needed changing to cater for umbrellas. Hopefully we will see what those changes are very soon, because firms will be making decisions from January 2021. We will continue to work with HMRC to try and help them resolve this issue.
Additionally, Tania Bower, Legal Counsel and Head of Public Policy at The Association of Professional Staffing Companies said:
We welcome the clarification of the definition of an intermediary as announced by HMRC. The change to the off payroll working rules provides contract professionals with the reassurance that working with a compliant umbrella company will be a safe and low risk alternative to limited company routes when IR35 is rolled out next year.
While this is certainly good news that we have been pushing for in our capacity as co-chair of HMRC’s IR35 forum, we are continuing to stress to recruitment businesses and contractors that preparation ahead of the off-payroll rollout from 6th April 2021 is crucial. Staffing companies need to begin preparing for these changes now in order to ensure a smooth transition period in April next year. With the potential for challenges to determinations, recruiters need to begin working with end-clients to accurately and fairly identify a contractor’s status, if they haven’t already done so, to prevent any knock-on effect on placements next year.
Monica Sharma is an English Literature graduate from the University of Warwick. As Editor for HRreview, her particular interests in HR include issues concerning diversity, employment law and wellbeing in the workplace. Alongside this, she has written for student publications in both England and Canada. Monica has also presented her academic work concerning the relationship between legal systems, sexual harassment and racism at a university conference at the University of Western Ontario, Canada.