Contractors' Questions: Will HSBC-type intermediary models beat the new IR35?

Contractor’s Question: There’s a lot of strong opinions online about the intermediary model for IR35 reform purposes incoming at HSBC. But these opinions are from contractors like me or those running contractor sites, so not actual specialists on IR35. What does a professional adviser on IR35 status make of the third-party model, in terms of its ability to bypass the proposed rules?

Expert’s Answer: A starting point here can be HMRC’s own guidance notes on off-payroll working, which can be viewed here.

The nub of the issue you raise is about supplying services, as opposed to supplying people and to be outside the scope of the off-payroll working rules, it needs to be an outsourced service as set out in the guidance, linked to above.

Regarding the reported case of HSBC, based on what we know, putting another ‘intermediary’ into the chain could be:

  • An umbrella company or an agency where the contractor is on the payroll of either, and the correct levels of tax and NIC are paid.

This would be fine – in that the off-payroll rules would not apply.

  • A “Consultancy”

If a genuine outsourced service -- as per the guidance, then this would also be fine. It would be a business-to-business relationship outside the 2020 rules.

  • A “Consultancy” by name only

By this I mean it is an outsourced service BUT it involves the supply of people giving a personal service. This would not be fine – in that it would be inside the 2020 rules.

Please note, all three types of ‘intermediary’ model would require significant ‘due diligence’ by the end-client to establish if the rules apply and where they do not, to establish the risks of the rules applying. 

In addition, if the intermediary used is a genuine consultancy, and if they are a medium or large business, they too will have to consider the 2020 rules, as they would be the 'end-client' under the framework. 

However the biggest problem everyone has is not knowing what the final legislation commencing in April 2020 is going to look like. Furthermore, without knowing all the information about the ‘intermediary’ proposed, it is difficult to see how the end-client will be affected -- and impossible to say whether or not the end-client will be required to undertake IR35 assessments.

The expert was Kate Cottrell, co-founder of IR35 advisory Bauer & Cottrell.

Tuesday 14th May 2019
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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