IR35 rules expected to change over intermediary confusion

The confusion surrounding what constitutes an “intermediary group” under IR35 will likely lead to a change in the primary legislation, according to the Association of Independent Professionals and the Self-Employed (IPSE) director of policy and external affairs, Andy Chamberlain.

The wording of the draft legislation appears to have created doubts over what the word “intermediary” means. Chamberlain is concerned that it could encompass agencies or umbrella companies rather than the intended target of just the contractor’s limited company.

In their October 2020 update, seen by Accountancy Age, HMRC says there have been “concerns” raised against how a company qualifies as an intermediary, but that “it is not the intention of the legislation” to capture a wider range of companies as some suggest.

HMRC refused to say whether this meant the legislation would need to change. In a statement, a spokesperson said: “We have engaged with stakeholders to understand their concerns about part of the off-payroll working legislation and reassure them that the policy intention remains in line with our published guidance.

“We continue to work closely with stakeholders on this issue and are considering what action is required to ensure the rules apply as intended.”

Chamberlain, who has had conversations with HMRC over the guidance, says it was his understanding that the legislation would need to change and that HMRC is aware of this.

“I think HMRC intend to change the legislation. I believe that that is their intention,” he says. “They’re hoping that everyone can carry on with this sort of wide understanding of how the rules are supposed to work. But they acknowledge that the legislation in itself doesn’t quite work in that way.”

However, Seb Maley, CEO at Qdos Contractor, a self-employed insurance and tax specialist firm, believes that this is merely a “storm in a teacup”.

“They probably should make an adjustment to the legislation, and obviously HMRC have said they recognise that it does need clarifying, so I would be surprised if it didn’t. But at the same time, if it didn’t, because they published that update, I don’t see it causing any major problems,” Maley says.

Maley says this is just a small piece of IR35, even if there were legislation change, it would be unlikely to delay the April 6, 2021 launch date. Chamberlain is less relaxed, however.

“They [HMRC] are going to have to think very carefully about how they do it. And it will raise the question again whether this is the right legislation coming in at the right time.”

For Chamberlain and IPSE, the latest fiasco over IR35 serves to further their belief that it is an ill thought out piece of legislation, while Maley describes IR35 as like “using a sledgehammer to crack a nut”.

“Our view is that this whole legislation is a disaster. We staunchly opposed the public sector rules coming in in 2017. We staunchly opposed this extension, broadly speaking, of those rules for the private sector now. We called for a delay to it early this year and then we amplified that once we realised the pandemic was coming,” says Chamberlain.

“We shouldn’t be going into April next year with the economy in the state it is, introducing these complicated rules that no one really understands which are going to put a barrier between people who want to work and firms who want to hire someone to do some work,” he adds.