Policy paper

Technical changes to make sure off-payroll working legislation operates as intended

Published 3 March 2021

Who is likely to be affected

Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.

Medium and large-sized client organisations in the private and voluntary sectors that engage individuals working through PSCs. Public sector client organisations will also be affected by changes to improve the operation of the reform.

Recruitment agencies and other intermediaries supplying staff working through PSCs.

General description of the measure

This measure will:

• address an unintended widening of the conditions where an intermediary is a company
• improve the operation of the rules by extending the provision of information to the intermediary, as well as the worker
• improve the operation of the rules by extending the consequences of providing fraudulent information to any UK-based party in the labour supply chain

The off-payroll working rules were reformed in 2017, moving the responsibility for operating the off-payroll working rules from the individual’s PSC, to the public sector client organisation that the individual is supplying their services to. This includes responsibility for deciding whether the rules should apply and ensuring the associated employment taxes and National Insurance contributions are deducted, where appropriate.

In Finance Act 2020, this reform was extended to the private and voluntary sectors. Engagements with small client organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.

Policy objective

A technical change to the off-payroll working rules is being made to ensure the legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company. The change will address an unintended widening of the conditions of an intermediary, which went beyond the intended scope of the policy.

The conditions of a company intermediary were amended in Finance Act 2020 to prevent avoidance of the off-payroll working rules by workers diluting their shares in the intermediary so that they do not have a material interest (for example, having a shareholding of less than or equal to 5%). This would have meant that the off-payroll working rules did not apply.

The amended condition set out that, where a worker is providing their services through an intermediary and receives a payment for the services provided, the rules should be considered. The scope of this condition was wider than the policy intent, as it would have caught any arrangement where the worker operates through a company, even if the full payment had already been taxed as employment income (such as where the worker is operating as an employee of an umbrella company). The technical change will limit the scope of this condition to only cases where the worker has less than a material interest in the intermediary and the payment received by the worker for the services provided is not already taxed wholly as employment income.

The measure will also improve the rules regarding the provision of information within the labour supply chain to ensure they operate effectively. The requirement to confirm whether the conditions of an intermediary are met will be extended to apply to the intermediary as well as the worker. This recognises that the intermediary will sometimes be better placed to confirm if one of the conditions is met. This change should make it easier for parties in the supply chain to confirm whether the worker is potentially subject to the off-payroll working rules.

The measure will further improve the operation of the rules by extending the provisions relating to fraudulent information. This will now include fraudulent information provided by any UK-based party in the labour supply chain, rather than just the worker or someone connected to them. This will prevent client organisations or deemed employers from facing a liability where they have been provided with fraudulent information by another party in the chain.

Background to the measure

A commitment to make a technical change to the legislation was announced by the Financial Secretary to the Treasury in a Written Ministerial Statement on 12 November 2020. This measure will address an unintended consequence of the off-payroll working legislation before it comes into effect on 6 April 2021. In addition to this technical change, two further changes have been identified that would improve the effectiveness of the technical change and wider rules.

Due to time constraints, there was no formal consultation on the technical changes. However, HM Revenue & Customs (HMRC) have worked extensively with stakeholders on the design of the changes to ensure that the rules operate as intended.

Detailed proposal

Operative date

The measure will have effect for contracts entered into, or payments made for work carried out, on or after 6 April 2021.

Current law

Current law is included in sections 48 to 61 of Chapter 8 of Part 2 of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), sections 61K to 61X of Chapter 10 of Part 2 of ITEPA 2003 and the Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000 No 727).

Proposed revisions

Legislation will be introduced in Finance Bill 2021 to amend ITEPA 2003 and relevant National Insurance contributions regulations. The changes include:

• amending section 61O (and equivalent provisions in Regulation 15 in the Social Security Contributions (Intermediaries) Regulations 2000) to introduce a new condition where a company is an intermediary that, if met, will bring the engagement in scope of the off-payroll working rules. This condition will be met if certain criteria apply. This condition will only need to be considered for engagements where the worker has an interest in the company intermediary that is less than material and receives a chain payment that is not wholly treated as employment income
• introducing a Targeted Anti-Avoidance Rule (TAAR) that will target any arrangements where the main purpose, or one of the main purposes, is to gain a tax advantage by circumventing the conditions of an intermediary and taking the engagement out of scope of the off-payroll working rules
• amending section 61U (and Regulation 21) to expand the requirement to provide information to the potential deemed employer to the intermediary, as well as the worker. This will require either the worker or the intermediary to confirm to the potential deemed employer whether one of the conditions in section 61N is met and therefore whether the rules should apply to the engagement. It remains the case that where the worker or intermediary does not confirm if the conditions are met, the client organisation must assume that one of the conditions is met and consider the application of the rules.
• amending section 61V (and Regulation 22) to extend the consequences for providing fraudulent information to include information provided by any UK-based party in the labour supply chain. Where fraudulent information is provided, the subsequent liability will be moved to the party that provided the fraudulent information.

Summary of impacts

Exchequer impact (£m)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any economic impacts.

Impact on individuals, households and families

This measure is not expected to have an impact on individuals, households or families beyond those already identified for the wider reform of the off-payroll working rules.

The technical change in this measure ensures that the policy operates as intended. The further changes will improve the operation of the legislation, but will not have any additional impacts on individuals, households or families.

Equalities impacts

This measure is not anticipated to impact on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is not expected to have an impact on business or civil society organisations beyond those already identified for the wider reform of the off-payroll working rules.

The technical change in this measure ensures that the policy operates as intended and restores the original policy intent.

The further changes will improve the operation of the legislation, but will not have any additional impacts on businesses or civil society organisations. This is because we expect that intermediaries will only need to confirm if conditions are met in cases of more complex arrangements, where they are likely to be sharing information with others in the supply chain already. This change makes it easier for client organisations to determine whether the rules apply.

Extending the consequences for providing fraudulent information to other parties in the supply chain will only affect businesses involved in fraudulent activity.

Operational impact (£m) (HMRC or other)

This measure is not expected to have any operational impact beyond those already identified for the wider reform of the off-payroll working rules. This measure ensures that the policy operates as intended.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups

Further advice

If you have any questions about this change, please contact the Off-Payroll Working Policy team by email: offpayrollworking.legislation@hmrc.gov.uk.