Taxman readies IR35 'clarity' for office-holders
Contractors' advisers anticipate that IR35 will feature in George Osborne’s Budget on Wednesday, with predictions ranging from a throwaway mention to fresh guidance on when the legislation applies, particularly to ‘office-holders.’
In line with the advisers' expectations, HM Revenue & Customs told the IR35 Forum at its last meeting that all HMRC's IR35 guidance, including the proposed extension to office-holders in Finance Bill 2013, was subject to a “refresh.”
Yesterday the taxman went one step further, when a Revenue spokesperson told ContractorUK: “HMRC plans to publish further guidance shortly on the change to IR35, explaining exactly what it means and providing clarity about when it will apply.”
The last time the Treasury updated its stance on IR35 it waited until a few days after Mr Osborne’s address - the Autumn Statement, but experts believe that HMRC’s ‘further guidance and clarity’ on the legislation could come in the Treasury's red book.
“I expect there will be something in the Budget on IR35, and inevitably, it will be in the direction of making things a bit tougher,” said Richard Baron, head of tax at the Institute of Directors.
“[The government] gave up on ‘controlling persons’, so the hawks in the Revenue will be back for something else. What is really important is that whatever it is, they put out their ideas in a completely non-committal fashion, so that if some ideas won’t work, they can drop them without any difficulty.”
Kate Cottrell, of employment status advisory Bauer & Cottrell, agrees that the Budget’s documents are unlikely to omit IR35, partly due to the sheer volume of activity in the area.
“I think there will be a mention buried somewhere [in Budget 2013] to cover the 'office holder' amendment...as a result of the response to the 'controlling persons' consultation”, she said.
“And perhaps there will even be something said about HMRC’s new approach and current work on ‘refreshing’ its IR35 guidance - all wrapped up in the moral fight against tax avoidance.”
Meanwhile, the HMRC spokesperson pointed out that the department's online manuals (ESM2503 and ESM2502) already provide guidance to taxpayers on what constitutes an office holder, who are being legislated against to “put beyond doubt” that IR35 applies to them for income tax purposes.
Yet doubt as to who ‘office-holders’ includes has arisen.
Legal advisory Egos says it should only apply to contractors working in three situations; the Treasury says it is senior personnel in specific positions, but IR35 consultancy Qdos Consulting thinks it cannot extend to a contractor occupying a 'divisional head' post at the client-outfit.
In addition, recruitment law firm Lawspeed has said that 'office-holders' currently applies to “many” contractors and, in agreement, legal specialist Macfarlanes says it includes non-executive directors, as well as individuals who have separate consultancy arrangements with companies of which they are directors.
Struck by the sheer range of interpretations doing the rounds, Andy Vessey of Qdos - which predicts HMRC’s three specialist teams could handle up to 1,000 IR35 cases in the next tax year - argues that the onus is clearly on officialdom to provide a legal definition of ‘office-holder’ for IR35 purposes.
But Mr Baron, of the IoD, hopes that such an important, seminal task of coming up with the criteria for 'office holders' under the IR35 legislation won’t be left to a lone mandarin.
“There will be ideas dreamt up in Whitehall that simply won’t work, and there is no way the civil servants can discover that, without asking contractors and their clients,” he said.
“Contractors work in lots of different ways, in lots of different types of job, and Whitehall just isn’t the expert on what will be practical.”