The IR35 rules as now applied to private sector businesses came into force on 6 April 2021. Now two months in, our experience has been that many consultants that are deemed to be subject to IR35 have been required to operate through umbrella companies, with others being brought into their clients' payroll. Where consultants still operate through intermediaries, their clients largely now have internal processes to deal with the requisite IR35 "status determinations". Where those determinations state that consultants fall within IR35, only a small handful continue to operate through their own intermediaries. For those who do, there have been no across-the-board fee increases to compensate for the tax cost, and few contractors chose to cancel contracts – opting instead to accept the tax cost.
The Finance Bill 2021 proposes to extend the definition of a relevant corporate intermediary to include personal service companies in which the consultant has a less than 5% interest. This proposed change means that, so long as the consultant is a shareholder, there is no minimum shareholding requirement to IR35's reach. A corporate intermediary will be within scope of the new rules if it receives payments which have been passed down from the end-user client in "chain payments", and which have not been taxed as employment income.
As the COVID-19 lockdown eases and workers return to offices across the UK, it would be prudent for clients to reconsider status determination statements in light of the new working conditions. As a rule of thumb, they should be reconsidered every 3-6 months, and when circumstances change generally.
The recent focus on mini umbrella companies following the BBC expose and Guardian investigation emphasises the importance of performing due diligence on supply chains. Umbrella companies can provide a convenient payroll solution for workers and clients who would otherwise be caught by the IR35 rules, but not all providers are equal and the Guardian's estimate that the missing tax could be up to £4.5 billion a year shows the scale of the potential problem.
Looking to the future, the press has spotted that former footballer and football commentator Gary Lineker has been investigated by HMRC in respect of the IR35 rules. It will be interesting to see whether this case makes it to the tax tribunal.