IR35 – technical change

The measure

The new private sector IR35 rules enacted by Finance Act 2020 introduced a wider definition of intermediary, where that intermediary is a company, than had previously applied for IR35 purposes. This had not been intended and would have meant, for example, that an umbrella company would have been considered an ‘intermediary’ and caught by the new rules even if it applied PAYE and NIC in full to the payments it made to the Personal Services Company in respect of the services supplied to the client.

Legislation will be introduced in Finance Bill 2021 amending the legislation to narrow the definition. This will ensure that the wider definition of an intermediary that is a company will only apply if the income has not all been treated as employment income.

In addition, there will be a few other changes to the legislation:

• The introduction of a targeted anti-avoidance rule to target any arrangements where the main or one of the main purposes is to gain a tax advantage by circumventing the intermediary conditions;
• Requiring the intermediary, as well as the worker, to provide information to the potential deemed employer. This means that either the intermediary or the worker has to notify the potential deemed employer as to whether the intermediary fulfils the relevant conditions and so is subject to the new IR35 rules; and
• Extending the consequences for providing fraudulent information to any UK-based party in the labour supply chain.

Who will be affected?

Those businesses engaging with intermediaries for the provision of services and the intermediaries themselves will be affected by these amendments. 

When will the measure come into effect?

The new rules and these amendments will take effect from 6 April 2021.