Updated IR35 legislation now published and will apply from 6th April

Towards the end of last year HMRC noted that unintended consequences were likely to flow from changes to wording in Chapter 10 of the Finance Act (IR35 rules) around the requirement for a contractor to have a ‘material interest’ in the intermediary (typically a personal service company PSC)). This followed comment from ourselves that all recruitment agencies supplying workers including PAYE workers would have to comply with the Chapter 10 rules if the wording was left as drafted, and additional issues were raised by others.

The result was a mini consultation with HMRC on a solution to address the issue, that we and other representatives from the sector participated in, and which concluded early in January.  The next step was for HMRC to publish amended legislation and guidance. The legislation was published on 3rd March.

In the original legislation from 2000 if the individual’s interest in the intermediary was not more than 5%, described as a material interest, the arrangement was excluded from scope of the rules. The new amendment requires individuals who have a material or non material interest in the intermediary, to disclose that fact to a supplying business engaging with the intermediary, or to the hirer where the engagement is direct.

A qualifying non material interest includes one held by an associate of the individual or an associate of an associate, and exists where there is a holding of or rights to 5% or less in shares and distributions or, in the case of a close company, assets, of the intermediary. Accordingly, whereas in the original rules from 2000 those with 5% or less interest in the intermediary were excluded from scope, now they are included.

This key component triggers application of the Chapter 10 processes. The result is that agency and umbrella companies supplying workers engaged directly under PAYE contracts, whether employment or personal contracts for services, are no longer affected so long as the worker has no interest in the agency or umbrella company.

HMRC has confirmed that the technical changes have been made “to ensure the rules operate as intended from 6 April 2021”. Those challenging the government’s plan to introduce the new rules will undoubtedly be disappointed.

For more advice or questions about the upcoming changes to the IR35 rules, or contracts that do not conflict with the principles in the recent Uber case, please call Lawspeed on 01273 236236.