IR35 – Clarification of Section 61O ITEPA relating to company intermediaries

• The Budget announcement made it clear that the extension to the off-payroll reform within the private sector is very much going ahead!
• This is evidently supported by the ‘Off-Payroll working’ Policy Paper which was published yesterday (3 March 2021), in addition to the, eagerly awaited publication of ‘Technical changes to make sure off-payroll working legislation operates as intended’, which, can be found here.

Amendment to Section 61O

• On 23rd October 2020 Aspire reported on “errant” clause in Section 61O of Chapter 10 ITEPA, which was introduced by way of the Finance Act 2020. Our news can be found here.
• The clause was introduced by the Government to counteract what they deemed to be potential avoidance of the off payroll working rules, whereby workers could potentially dilute their shareholding in their intermediary that is a company, typically a Personal Service Company (PSC), so that they did not have a material interest (a shareholding equal to or less than 5%). This would have meant that the off payroll working rules did not need to be considered.
• The errant clause also broadened the definition of a company intermediary to “any company that makes a chain payment to a worker”, which effectively meant that an umbrella company within a supply chain could in effect be deemed a company intermediary for the purposes of IR35.

What have the Government announced?

• As promised, the Government will amend section 61O ITEPA 2003, to introduce a new condition, where a company is an intermediary, IR35 will only be considered for engagements where the worker has an interest in the intermediary company that is less than material and receives a chain payment that is not wholly treated as employment income.
• The changes have been made under a Provisional Collection of Taxes Act resolution meaning they will have effect from 6 April 2021, alongside the rest of the rules. See the legislative provisions here.
• This means that umbrella companies, agencies and other third-party companies providing a worker’s services will not be deemed an intermediary company in the scope of the rules as it is highly unlikely that the worker has an “interest” in the umbrella company or agency etc.

Aspire Comment

We welcome the amendment to Section 61O ITEPA which will be of particular relief to umbrella companies and agencies.

However, for those agencies and umbrella companies providing the services of a PSC worker to an end client from April 2021, care needs to be taken in ensuring that the supply chain is aware that there is a PSC in the supply chain. This is particularly prevalent now, considering the amendment to Sections 61V ITEPA, that all parties in the supply chain must provide accurate information throughout.

Failure to follow the legislation and failure to undertake your responsibilities may be costly, as soon as HMRC begin to undertake compliance activities post April 2021.

To see a full summary of the budget announcements, including other amendments to ITEPA in relation to the off-payroll reform, see our news here.