IR35 implementation is a tricky business – even for HMRC

HMRC is to clarify an “errant clause” in the IR35 legislation which effectively redefines intermediaries and makes the agency a fee-payer.

Liquid Friday’s Group Head of Operations, Joe Taffurelli, explains what’s happened:

Recent news articles have highlighted an “unforeseen consequence” of some of the current wording within the new Chapter 10 (ITEPA) of the Finance Act 2020. HMRC have inadvertently caught both Umbrella Companies, and other Agencies that may exist within the supply chain, in the overall definition of an ‘Intermediary’ for tax purposes.

Why does this matter?

Under the current wording, it may be read that, any payment made within the ‘Contingent Labour’ Supply chain would be subject to Tax & National Insurance at source. This would obviously be a disaster for the supply chain, and as quoted by HMRC , “ is not be the intended consequence” of the legislation.

In short this is clearly an error in wording on HMRC’s part that simply needs fixing as HMRC have always confirmed that IR35 determinations do not affect Umbrella engagements.

What happens now?

Industry leaders have already held initial conversations with HMRC, with more to follow this week, to discuss the issue fully and resolve this unintended error ASAP.

When asked, Phil Pluck, FCSA CEO said on the matter:

“The legislative process often throws up conflicting issues and I am pleased to see that HMRC has engaged with the FCSA at an early stage and has indicated that they are keen to resolve the issues as soon as possible. FCSA has a legal team working on the matter now in order to bring certainty and assurance to the entire supply chain. I am confident that we can resolve this matter shortly so that agencies and umbrella companies can continue to work together in a productive and compliant manner.“

The FCSA’s full statement on the issue, is available here

HMRC, HM Treasury and the most recent “Good Work Plan” from Matthew Taylor all point to the importance of compliant Umbrellas in the contingent labour supply chain, whilst continuing in their plans to regulate the industry as a whole. Therefore, I have every expectation that a fast & simple solution will be found within the coming weeks.

It is important to remember that this is why the Government allows implementation periods to test and refine legislation as it passes through to become law. HMRC are working hard to correct this oversight within the wording of legislation and still have sufficient time to implement any alterations.

IR35

What isn’t changing is the imminent roll out of the wider IR35 reforms. It is more important than ever to partner with Liquid Friday to ensure a smooth transition for PSC s into Umbrella or simply to discuss how you can manage Deemed Payments on scale.

If you, or your team, would like to discuss all things IR35 or Payroll, please get in contact on 02392 883300 or simply drop me a message today.