Finance Bill 2021 will exempt umbrella contractors from IR35 off-payroll rules – Norman

The government has reassured the umbrella company sector by starting to make good on its promise that the new off-payroll rules will not apply to their workers from April 6th 2021.

If the incoming rules to reform IR35 did, and were left with the current definition of ‘intermediary,’ the financial viability of umbrella companies would be in doubt.

But on Thursday, Jesse Norman said a technical change in the next Finance Bill would be made to “correct an unintended widening” of the rules which could have hit agencies too.

'Inevitable'

“As soon as the issue came to light, it was inevitable they would need to do something,” former FCSA chair Julia Kermode said of both the minister and HM Treasury.

She added:“[This] important update [says the] off-payroll rules [are] being amended to confirm that ‘intermediary’ is not intended to encompass umbrellas or agencies.”

“[It] will ensure the legislation operates as intended…for engagements where an intermediary is a company,” said employment expert Susan Ball, quoting from Mr Norman’s statement.

'Other than that individual's intermediary'

In new guidance, HMRC says the rules do not apply to contractors already on an employment contract where PAYE is applied by a party “other than that individual’s intermediary.”

“If a worker is legitimately employed by an agency and that agency operates PAYE,” adds HMRC, “Chapter 10 should not be applied where that worker performs services to a client.”

Chris Mattingly, chief executive of The Contractor Co-operative outlined the change due at Finance Bill 2021 for the other beneficiaries -- umbrella companies.

“When enacted, [it] should confirm that the IR35 legislation will not apply to umbrella contractors engaged under a contract of employment with earnings subject to PAYE.”

'Law needs to work properly'

Online, umbrella contractors themselves welcomed the move as “excellent” and “good news,” especially as they can now see new proposed wording relating to "conditions of liability."

“Many have commented that HMRC guidance is all very well, but it's not the law, and the law needs to work properly,” reflects Chris James, a director at JSA Accounting.

“[But] they've [now] had a think, and they're going to change the law.”  

'Unintended consequence'

On the same day as the minister’s statement, HMRC also updated its Employment Status Manual (designed for the department’s internal use), observes Rebecca Seeley Harris.

The founder of ReLegal Consulting says: “The ESM on off-payroll working Chapter 10 conditions of liability [contains new wording].

“This refers to the previously reported unintended consequences of the definition under Section 61O which potentially widened the scope to umbrella companies.”

'A statement from THAT minister'

This trickling down of the change into HMRC and its manual for staff will reassure those who say they have lost trust in ministerial statements when they come from Mr Norman.

“[It’s] all well and good,” one contractor scoffed, “but it's a statement from THAT minister.”

Among the more optimistic is Mr James, partly because the intended change is now a matter of parliamentary record (previously there was only a HMRC press statement on the issue).

But he believes actions not words will be the key. “A statement from a minister is a very good start,” the JSA boss said. “[But] they'll have to do it right -- and there will be plenty of people ready to call them out if they don't.”