[UK] HMRC urged to correct 'errant' IR35 reform clause that could ‘kill off’ umbrella companies

HM Revenue & Customs (HMRC) is being urged to make urgent tweaks to the incoming IR35 tax avoidance reforms after an 'errant clause' was discovered within its wording that calls into question future need for IT contractors to use umbrella companies to engage with their clients. The revamped IR35 reforms come into play in six months time for the private sector and concerns have reportedly been raised including this clause within the off-payroll legislation because experts claim it could if left unchecked prove very problematic for IT contractors providing services to clients via umbrella companies.

Contractors who want to outsource the administration and accounts work involved with operating as a freelancer often prefer to work this way, with the umbrella company taking responsibility for invoicing the clients the contractor works for and making sure the correct tax deductions are taken from their salary each month and paid to HMRC. A change introduced to Chapter 10 of the Income Tax Act 2003 by the Finance Act in March 2020 is said to have the potential to upset this dynamic and make the role of umbrella companies in this process irrelevant by effectively misclassifying such firms as “intermediaries”. Computer Weekly explains how. 

HM Revenue & Customs (HMRC) is being urged to make urgent tweaks to the incoming IR35 tax avoidance reforms after an 'errant clause' was discovered within its wording that calls into question future need for IT contractors to use umbrella companies to engage with their clients. The revamped IR35 reforms come into play in six months time for the private sector and concerns have reportedly been raised including this clause within the off-payroll legislation because experts claim it could if left unchecked prove very problematic for IT contractors providing services to clients via umbrella companies.

Contractors who want to outsource the administration and accounts work involved with operating as a freelancer often prefer to work this way, with the umbrella company taking responsibility for invoicing the clients the contractor works for and making sure the correct tax deductions are taken from their salary each month and paid to HMRC. A change introduced to Chapter 10 of the Income Tax Act 2003 by the Finance Act in March 2020 is said to have the potential to upset this dynamic and make the role of umbrella companies in this process irrelevant by effectively misclassifying such firms as “intermediaries”. Computer Weekly explains how.