This week’s budget included a few technical points in relation to the off-payroll changes which will be effective from 6 April 2021:
An error in the drafting of the off-payroll legislation inadvertently led to umbrella companies being within scope of their definition of “intermediary”. The impact of the error, if left uncorrected, would have meant that monies paid to an umbrella (by a recruitment agency) would need to be taxed via payroll prior to being remitted. At the time the error came to light HMRC were prompt in confirming that this was not their intention, and that this broadening of “intermediary” would be corrected as has been the case.
Targeted Anti-Avoidance Rule
A Targeted Anti-Avoidance Rule has been introduced which aims to enable HMRC to track down contrived arrangements that have contractors falsely working outside IR35. In essence it means that firms using models that fall outside IR35 will need to be able to demonstrate that it is something they would be doing anyway for commercial reasons, i.e. they are not operating in that way purely to get around the off-payroll legislation.
A further amendment has been made to “extend the consequences for providing fraudulent information to include any UK-based party in the labour supply chain. Where fraudulent information is provided, the subsequent liability will be moved to the party that provided the fraudulent information.” In essence this means that whichever entity within the supply chain provides fraudulent information will now be held liable for any resulting tax and NICs loss.
Previously the fraudulent information clause only applied to that supplied by the contractor themselves, meaning that others in supply chain could give false information without redress. The amendment is very logical as it reduces the risk to clients of engaging personal service companies outside of IR35, and somewhat surprising that it wasn’t already the case!