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Change proposed to off-payroll working rules for intermediaries

13 November 2020: Intermediaries which are not personal service companies such as umbrella companies and agencies, will be treated differently to personal services companies in the new off-payroll working regime.

It has been announced in a written ministerial statement from Jesse Norman, the Financial Secretary to the Treasury, that the new off-payroll working rules which come into effect on 6 April 2021 will be tweaked in Finance Bill 2021. The change will ensure that intermediaries that are companies are not treated in the same way as intermediaries that are personal service companies (PSC).

If left unchanged, then, where the other conditions of Chapter 10 are met, PAYE could have been required to be withheld from payments to a wider than intended range of companies providing a worker’s services to a third party. This would have included:

  • umbrella companies;
  • employers seconding employees; and
  • agencies providing workers.

The amended conditions in s61O, ITEPA 2003 (added by FA 2020) were intended to prevent avoidance arrangements that seek to get around the material interest test. The wider consequences of this amendment were not the policy intention.

HMRC has told ICAEW’s Tax Faculty that businesses and individuals should continue to prepare for the introduction of the off-payroll working rules on the basis that Chapter 10 will not apply where:

  • an individual performs services for a client;
  • that individual is already engaged under a contract of employment; and
  • their earnings are subject to PAYE by another party in that supply chain, other than that individual’s PSC.

For example, if a worker is employed by an umbrella company that operates PAYE on the payment to the worker and that worker performs services to a client, Chapter 10 should not be applied. Similarly, the secondment of employees to other organisations would not be in scope of Chapter 10.

The government’s policy intent in relation to the off-payroll working legislation is set out in its technical guidance ESM10000 (updated on 12 November 2020).

A corresponding change will be made for NIC once Finance Bill 2021 has been published.