Contractors' Questions: How will the IR35 amendment affect me?

Contractor’s Question: I realise it’s only just been proposed, but what will the draft legislation put forward by the Treasury to extend IR35 mean, in the long-term and in practice, if I run a personal services company?

Expert’s Answer: This extension may not be an enormous big deal for most personal service company contractors; but care needs to be taken in three situations:

  • Interim managers filling high level positions, particularly in the (admittedly unlikely) event that they were actually appointed directors of a company for the duration of the engagement, or are temporarily replacing or covering for a director during a period of the director's own absence.
  • Again probably an unusual situation, but where an individual is effectively in the position of what is regarded by other legislation as a "shadow director" – effectively, directing the major decisions of an organisation without actually having been appointed as a director.
  • Joint ventures, where the shares in the joint venture company are held by the participating individuals' own companies, and the individuals themselves are directors of the joint-venture.

In circumstances where the services provided by an individual can be divided into (a) director-level work, i.e. work that needs to be done by a director, and (b) other work, there may be scope for splitting the work into two separate contracts. If this is done, it would be wise to take care to ensure that the remuneration split between the contracts is reasonably justifiable.

The expert was Roger Sinclair, legal consultant at Egos.

Tuesday 11th December 2012