HMRC rectifies conditions of liability oversight in readiness for IR35 changes

Last year, HMRC made some minor last-minute changes to the Finance Act 2020 in preparation for the implementation of the IR35 reforms.

Without seeking consultation from sector stakeholders, HMRC amended the conditions of liability (COL) for a company intermediary in an attempt to prevent avoidance of the off-payroll working rules.

By reducing their shareholding to less than 5%, workers providing their services via an intermediary would remove the conditions of liability required for the off-payroll working rules to apply.

Therefore, the government felt it necessary to close this loophole by clarifying the conditions of a company intermediary.

Changes went beyond the intended scope

Whilst wholly unintended, the subsequent changes made to the Finance Act 2020 extended the scope of the conditions for an intermediary. In the words of the government, the changes “went beyond the intended scope of the policy”.

Different intermediaries such as partnerships or incorporated limited companies have different conditions of liability. In the original IR35 legislation, the intermediary conditions of liability stipulated that the worker must hold a material interest (5% or more) in the intermediary.

The legislation also required the worker to disclose to the engager that it held a material interest in the intermediary. Where the worker failed to provide the information, the engager was to assume that the worker held a material interest.

However, whilst the material interest condition remained the same, HMRC added two further conditions as follows;

Where the worker receives a chain payment.


Where the worker is entitled to receive a chain payment.

When strictly applied, these added conditions meant that any worker providing services via an intermediary where a chain payment is received would fall within the scope of the legislation. The unintended consequences being that some self-employed or even employed workers would fall within the scope of the legislation.

HMRC announced a commitment to addressing this oversight on the 12th of November 2020. On 3rd March 2021, HMRC published a policy paper stating that the scope of this condition was wider than the policy intent. It confirmed that 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).

Operating as intended

Having published its policy paper, HMRC confirmed its intention to amend the conditions of liability again to limit the scope of the condition to cases as follows;

Where the worker holds a material interest.


Where the worker holds 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.

Additionally, HMRC has extended the requirement to confirm whether the conditions of an intermediary are met to the intermediary as well as the worker. The change is intended to make it easier for parties in the supply chain to confirm whether the worker is potentially subject to the IR35 off-payroll working rules.

The provision of fraudulent information was also extended to any UK-based party in the labour supply chain, rather than just the worker or someone connected to them. This is aimed at preventing deemed employers from facing a liability where they have been provided with fraudulent information by another party in the chain.


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We are currently awaiting the confirmed wording of the technical changes and will provide an update once published.

For queries regarding the above technical changes or any other IR35 related issues, Workr Group has a specialist IR35 team that can support and advise you.

You can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at

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