Changes to the wording in the final text of the Finance Act 2020 (which implements the Off Payroll Working Rules) have resulted in concerns that umbrella companies have been re-classified as ‘intermediaries’ under the off payroll working rules, which will apply from April 2021.

Changes have been made to the definition of ‘intermediary’, which was intended only to cover personal service companies. However, an ‘and’ is missing in one of the provisions, resulting in the appearance that umbrella companies have been re-classified as intermediaries under the legislation.

Currently, umbrella companies employ their workers directly, and accordingly they operate PAYE on the payments made to those workers. If the concerns around the changes are realised, the reclassification would mean that the ‘fee-payer’, such as an agency, would have to operate PAYE on the payments made to the umbrella, which in turn would make the use of an umbrella company defunct.

In seeking to reassure umbrella companies, HMRC has issued a statement to stakeholders confirming that it was not its intention to capture umbrella companies with the changes to the legislation. It confirmed that the off-payroll working rules are not intended to cover scenarios where the worker is already employed, and that it is considering what action it needs to take to ensure the off-payroll working rules apply as intended.

You can read HMRC’s response here.

Although HMRC’s statement is somewhat reassuring, the changes have yet to be rectified, and have created more confusion and difficulties for clients attempting to review their arrangements ahead of April 2021.

We will keep an eye on the situation as it evolves, and if you would like to speak to an IR35 expert about your arrangements with consultants in the meantime, please contact us.