The employment income provisions in this year’s Act contain a predictable miscellaneous group of provisions. Like every year, in addition to headline grabbing measures, there is always some tidying up to do, whether to cover glitches identified by taxpayers or the courts or to improve the system with either a new tax charge or new relief. This year, the balance is in favour of reliefs to remove undesirable tax charges flowing from the coronavirus crisis.
IR35 – a correction and a TAAR
The reforms of the off-payroll provisions in ITEPA 2003 Part 2 Chapter 10 by FA 2020 have been trailed extensively in this journal and elsewhere. Section 21 brings in some changes which have effect from the start of the new IR35 regime on 6 April 2021.
The new regime will be scrutinised and fought over in the next few years, with potentially a three way fight between HMRC seeking to prevent perceived tax avoidance, corporate end users seeking to de-risk off payroll workers and resource suppliers such as agencies and consultancies stuck in the middle and at risk as the party paying the intermediary PSCs.
Before this fight can start, Parliament has, in FA 2021, had a second go at amendments to adjust the anti-avoidance rules.
As part of the FA 2020 package, an amendment was made to s 61O to expand the definition of ‘intermediary’ beyond that of a personal services company or partnership in which the worker has a material beneficial interest to include any intermediary who makes a chain payment to a worker or one from whom the worker is entitled to receive a chain payment. Rather belatedly, following lobbying from stakeholders, it was realised that this amendment went too far and caught engagements outside of the original intention of the legislation, such as those involving umbrella companies.
Section 21 therefore improves the test in s 61O to apply to cases where the worker has a less than material interest in the intermediary and the payment received by the worker for the services provided is not already taxed wholly as employment income. This means that PAYE umbrella companies and staffing agencies who pay temps are no longer technically caught within the definition of ‘intermediary’ in s 61O.
There is also a new targeted anti-avoidance rule to prevent future avoidance of the conditions. The TAAR requires there to be an intermediary which has been set up to replace an arrangement that would, otherwise, have been an intermediary. It might, for example, apply to a CIS company that has been set up to provide a way for ex-PSC contractors to work around the IR35 rules. If it applies, the liability that would have been due, but for the avoidance arrangement, will fall on the person who entered the avoidance. If more than one, the liability will rest with the highest person in the chain involved in the avoidance.
Arguably these provisions are only of interest to those who are engaged in avoidance, but they do not help anyone trying to read Chapter 10.
Coronavirus and unintended consequences
The bulk of the other changes are perhaps pedestrian, but mainly tidy up undesirable tax consequences that would otherwise arise from the coronavirus crisis. Sensible measures.
Employees holding enterprise management incentive (EMI) options were at risk of suffering a disqualifying event and losing the beneficial tax status of their options if they were put on furlough or reduced hours and so couldn’t meet the ‘working time requirement’. Relief was provided in FA 2020 s 1070 which originally had effect until 5 April 2021 but FA 2021 s 24 has extended this to 5 April 2022 and also confirms that new EMI options may be granted to employees who are on furlough or working reduced hours due to the coronavirus emergency. These changes will apply for a limited period from 19 March 2020 until 5 April 2022.
The tax exemption for employers providing cycles and cycling equipment will still apply to equipment provided on or before 20 December 2020 even though the employees, on furlough or working from home, no longer meet the statutory test of using the equipment mainly for journeys to and from work.
There is a new income tax exemption to ensure that employees are not taxed on the ‘benefit’ of being provided with or reimbursed for the cost of a coronavirus antigen test by their employer.
The employment income provisions in this year’s Act contain a predictable miscellaneous group of provisions. Like every year, in addition to headline grabbing measures, there is always some tidying up to do, whether to cover glitches identified by taxpayers or the courts or to improve the system with either a new tax charge or new relief. This year, the balance is in favour of reliefs to remove undesirable tax charges flowing from the coronavirus crisis.
IR35 – a correction and a TAAR
The reforms of the off-payroll provisions in ITEPA 2003 Part 2 Chapter 10 by FA 2020 have been trailed extensively in this journal and elsewhere. Section 21 brings in some changes which have effect from the start of the new IR35 regime on 6 April 2021.
The new regime will be scrutinised and fought over in the next few years, with potentially a three way fight between HMRC seeking to prevent perceived tax avoidance, corporate end users seeking to de-risk off payroll workers and resource suppliers such as agencies and consultancies stuck in the middle and at risk as the party paying the intermediary PSCs.
Before this fight can start, Parliament has, in FA 2021, had a second go at amendments to adjust the anti-avoidance rules.
As part of the FA 2020 package, an amendment was made to s 61O to expand the definition of ‘intermediary’ beyond that of a personal services company or partnership in which the worker has a material beneficial interest to include any intermediary who makes a chain payment to a worker or one from whom the worker is entitled to receive a chain payment. Rather belatedly, following lobbying from stakeholders, it was realised that this amendment went too far and caught engagements outside of the original intention of the legislation, such as those involving umbrella companies.
Section 21 therefore improves the test in s 61O to apply to cases where the worker has a less than material interest in the intermediary and the payment received by the worker for the services provided is not already taxed wholly as employment income. This means that PAYE umbrella companies and staffing agencies who pay temps are no longer technically caught within the definition of ‘intermediary’ in s 61O.
There is also a new targeted anti-avoidance rule to prevent future avoidance of the conditions. The TAAR requires there to be an intermediary which has been set up to replace an arrangement that would, otherwise, have been an intermediary. It might, for example, apply to a CIS company that has been set up to provide a way for ex-PSC contractors to work around the IR35 rules. If it applies, the liability that would have been due, but for the avoidance arrangement, will fall on the person who entered the avoidance. If more than one, the liability will rest with the highest person in the chain involved in the avoidance.
Arguably these provisions are only of interest to those who are engaged in avoidance, but they do not help anyone trying to read Chapter 10.
Coronavirus and unintended consequences
The bulk of the other changes are perhaps pedestrian, but mainly tidy up undesirable tax consequences that would otherwise arise from the coronavirus crisis. Sensible measures.
Employees holding enterprise management incentive (EMI) options were at risk of suffering a disqualifying event and losing the beneficial tax status of their options if they were put on furlough or reduced hours and so couldn’t meet the ‘working time requirement’. Relief was provided in FA 2020 s 1070 which originally had effect until 5 April 2021 but FA 2021 s 24 has extended this to 5 April 2022 and also confirms that new EMI options may be granted to employees who are on furlough or working reduced hours due to the coronavirus emergency. These changes will apply for a limited period from 19 March 2020 until 5 April 2022.
The tax exemption for employers providing cycles and cycling equipment will still apply to equipment provided on or before 20 December 2020 even though the employees, on furlough or working from home, no longer meet the statutory test of using the equipment mainly for journeys to and from work.
There is a new income tax exemption to ensure that employees are not taxed on the ‘benefit’ of being provided with or reimbursed for the cost of a coronavirus antigen test by their employer.
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