HMRC OP21: Interpretation of s.61O

Published: 19 October 2020

On 16 October 2020, HMRC issued a stakeholder update on the interpretation of section 61O of Chapter 10 ITEPA 2003 and the conditions where the intermediary is a company. HMRC had become aware of the possible unintended consequences of the amendment to s.61O of Chapter 10 ITEPA, that will apply from 6 April 2021.

As part of the Finance Act 2020, the Government introduced an amendment to section 61O of ITEPA 2003. This related to the conditions where an intermediary is a company. This amendment was made to protect against arrangements put in place to side step the material interest condition.


The amendment means that third parties such as umbrella companies, employers seconding employees and agencies providing workers in circumstances where the other conditions of Chapter 10 were met, would qualify as the intermediary for the off-payroll working rules (OP21). The interpretation would require a client to apply Chapter 10 to those engagements and make deductions before paying those companies. HMRC have stated that this was not the intention of the legislation.

The OP21 rules are intended to apply to situations where the worker’s services are supplied through their own intermediary. Where a worker is already subject to PAYE on all of the income from the engagement as an employee, other than with their own intermediary, HMRC does not intend Chapter 10 to apply.

HMRC is considering what action to take to ensure that OP21 applies as intended in order to provide certainty to those affected by the reform.

Employment Status Manual

HMRC also have a ‘note’ in their guidance on basic principles: conditions of liability in the Employment Status Manual.

Note – Chapter 10 should not apply where an individual performs services for a client and that individual is already engaged under a contract of employment and their earnings are subject to PAYE by another party, other than that individual’s intermediary, in that supply chain. For example, if a worker is legitimately employed by an agency and that agency operates PAYE, Chapter 10 should not be applied where that worker performs services to a client.

off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: conditions of liability

Rebecca Seeley Harris says:

It must be made clear though that as the Finance Act 2020 received Royal Assent in July 2020, this is now law and an HMRC guidance note does not alter that.

The amendments

The amendments to Chapter 10 of Part 2 of ITEPA 2003 were made in Schedule 1 of the Finance Act 2020:

In section 61O(1) (conditions where intermediary is a company) for paragraph (b) substitute—

“(b) it is the case that—

(i) the worker has a material interest in the intermediary,

(ii) the worker has received a chain payment from the intermediary, or

(iii) the worker has rights which entitle, or which in any circumstances would entitle, the worker to receive a chain payment from the intermediary.”

The new wording would apply to an umbrella company because it would meet the definition of an intermediary. This would in turn make the position of the umbrella company effectively redundant.

Royal Assent

As the Finance Bill has received Royal Assent, it can no longer be amended. Amendments are made during the process of the Bill, which is the purpose of the process. The legislation has to be corrected otherwise the law is as it stands at present regardless of HMRC’s stated intentions.

The most likely route is to draft an amendment via primary legislation which will have retrospective effect. The draft clause should be put out for consultation at the earliest opportunity but, if the legislation does not receive royal assent before 6 April 2021, the effect should be retrospective.

It is unlikely that this situation will remain unresolved and it is clear that HMRC intend to rectify the legislation.