Osborne fails to quash IR35 uncertainty for 'office holders'
Contractors’ advisers were right to predict that IR35 would feature in George Osborne’s Budget – delivered earlier today - but it was only the throwaway mention they predicted which emerged, not the new guidance promised by the taxman for 'office holders.'
In a mere reiteration of government policy, the Treasury says at 2.192 of its Red Book that an amendment will be made to the IR35 rules to “put beyond doubt” that the legislation applies for tax purposes to contractors who are ‘office holders’ of their clients.
Seeming to confirm that the proposal will go ahead as currently drafted, a new document from HM Revenue & Customs listing “measures unchanged” cites an amendment to be introduced in Finance Bill 2013 relating to “Personal Services Companies and IR35.”
The document, published today alongside the Budget, also states that the Finance Bill 2013 will be published on March 28th, suggesting that the new IR35 guidance which HMRC has promised for 'office holders' is likely to be unveiled on that date or before.
Martyn Valentine of IR35 advisory The Law Place reflected: “The Budget 2013 reiterates the government's intention as already stated in the Autumn Statement in 2012 to amend the IR35 legislation to end the loophole which currently exempts limited company contractors acting as 'office holders' of their client from the scope of the IR35 legislation.
“Once this amendment has been enacted it is likely that such contractors will either pay additional tax [under IR35] or consider other arrangements, perhaps even employment.”
He added that contractors caught by IR35’s extension could be those working at a client company as one of that company’s “directors”, in line with the Treasury’s guidance that ‘office-holders’ are senior personnel occupying specific positions.
Meanwhile Chris Leslie, a former head of investigations for the Revenue, says he does not believe that HMRC will renege on its previous statement that ‘office holders’ will not extend to contractors who are an office holder of his or her own company.
But sounding concerned for its members, Interim Partners, a provider of professionals for short-term placements said: “Senior interim managers should not be treated as payroll employees, because they just aren’t the same.
“Interims working at a senior, office holder level, are used by businesses to meet short term challenges with a very specific skillset that the business usually can’t access on the permanent market. Frankly, it’s ridiculous to think they should be taxed like permanent employees.”
Elsewhere in Budget 2013, the Treasury makes clear it is not just contractors using personal services companies to execute an office-holder role at their client-outfit who are within the government’s crosshairs on the avoidance of employment taxes.
In particular, the government says it will consult on fresh measures to “remove the presumption of self-employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs.”
Mr Valentine reassured: “Paragraph 1.209 dealing with applying employment tax to limited liability partnerships is unlikely to have major implications for IR35.
“While limited liability partnerships are potentially an 'intermediary,' if a LLP is engaged to provide a service to a client using more than one individual then IR35 is unlikely to apply. However, it would be wise to examine the [incoming] consultation [carefully].”
Martin Hesketh, managing director at contractor accountancy firm Brookson, agrees that the consultation to remove the presumption of self-employment from LLPs will be critical.
“We would urge the government to ensure legislation doesn’t have an adverse effect on other freelancers and contractors, and avoid the furore around last year’s ‘Controlling Persons’ announcement,” he said.
For the time being however – and given that HMRC’s new IR35 guidance for office holders is still waiting in the wings – Mr Hesketh believes it is 'business as usual' for contractors: “The relevant section of the budget document (page 88) says the issue of ‘office holders’ and IR35 will be clarified with the upcoming Finance Bill, so we must continue to wait for the detail.”