IR35 changes to legislation for office-holders
Following the budget, HMRC have announced the latest changes to IR35 legislation.
The legislation is to being amended to cover office-holders for the 2013-14 tax year onwards.
HMRC define an ‘office-holder’ as someone who has a ‘permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders’.
The change in the legislation applies when a worker’s personal services are supplied via an intermediary to perform the duties of an office, including when:
- A worker is personally appointed to perform the duties of an office.
- An intermediary is appointed as a corporate office-holder, provides the worker to perform the duties of that office and the worker’s personal services are required.
- A worker is engaged both as an office-holder and is obliged to perform other duties in circumstances when they would be regarded as an employee if they were employed directly by the client. (For example, a director also engaged as a CEO who has some duties arising from their office but in addition has managerial duties whereby they are mainly responsible for the client company’s day to day activities).
- A worker has earnings from an employment that have already been subject to PAYE/NICs by a client but they are also engaged by that client as an office-holder.
It would appear that the intention of the legislation is to broaden the scope of IR35 rules to catch any contractor who is regarded by HMRC as supplied to a specific position within an organisation.
On the face of it, the above could apply to any management role unless the role is specifically linked to a project being undertaken by the contractor, where the client could easily appoint a successor.
The legislation looks to particularly apply to Interim managers, who normally temporarily fill a specified position, and are charge of the client’s workforce or business arrangements.
Recently, there have been several high profile senior managers in organisations such as Student Loans, BBC and many others who have been using personal service companies to mitigate income tax and national insurance payments.
In the above cases, and in fact generally, it should have been apparent that it was their employers’ responsibility to correctly apply PAYE rules where an individual took up such a responsible and controlling office-holder position.
As with previous amendments to IR35, there will be some initial confusion on how it applies to the various circumstances and positions that contractors fill with their clients.
This change has highlighted the added importance of reviewing contracts in circumstances where the contractor is appointed as an office holder of the hirer.