It seems HMRC are at it again, adding even more uncertainty and confusion surrounding the new Off-payroll IR35 rules.

A late edition to the Finance Bill 2020 appears to have not been thought through and has caused confusion in the industry. There are many articles been published surrounding this late addition which if correct would mean that switching from a Limited company to using an Umbrella company would not be accepted to satisfy the new rules.

We have asked our friends at Lawspeed to shed some light on this and to clarify the position. This is what they had to say:-

Our understanding of the legislation is different to the interpretation others have written, which we believe is based on a misreading of the legislation. Whilst it is correct that an umbrella is classed as an intermediary within the statutory definition, as are agencies, our understanding is that the IR35 rules do not apply to workers employed by umbrellas because the worker does not have a material interest in the umbrella company. The other articles refers to a change to the legislation at s61O which states 

61O Conditions where intermediary is a company

(1) The conditions mentioned in section 61N(9)(b) are that—

(a) the intermediary is not an associated company of the client that falls within subsection (2), and

(b) it is the case that –

(i) the worker has a material interest in the intermediary,

(ii) the worker has received a chain payment from the intermediary, or

(iii) the worker has rights which entitle, or which in any circumstances would entitle, the worker to receive a chain payment from the intermediary.

At subsection (b) the other articles suggest that this means that the rules apply if the worker has a material interest in the intermediary OR the worker has received a chain payment from the intermediary. We believe that this cannot be correct and the correct interpretation is that the rules apply where the worker has a material interest AND they receive a chain payment. If the Contractor Calculator interpretation was correct then effectively the provision that the worker should have a material interest would be effectively pointless. It would also mean that all workers supplied by agencies to hirers, not just umbrellas, would be covered by the rules. This would mean that the scope of the rules would be massively extended. The wording of the legislation could, however, be clearer and to add to the confusion HMRC guidance has added the word OR between subsection (b) (i) and (ii) a word that does not appear in the published legislation.

We believe that this matter does now need to be clarified by HMRC.