HMRC unveils IR35 guidance for 'office-holder' contractors
New IR35 guidance from the taxman on when the ‘disguised employment’ legislation applies has been handed to contractors using a limited company to execute an ‘office holder’ role at their client-outfit.
Making good its promise on the eve of Budget 2013 to publish fresh IR35 guidance "shortly", HM Revenue & Customs last week produced a definition of ‘office holder’ and explanations of when such persons are within IR35’s scope.
Although HMRC concedes that both its definition and explanations, spelt out in explanatory notes to Finance Bill 2013, are “non-exhaustive,” they will apply from April 6th 2013 before becoming official when the bill passes in the summer.
So from the tax year 2013-14, an ‘office holder’ is a worker 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.”
Basing its definition on case law (specifically Great Western Railway Company v Bater), HMRC says that an office is a “separate and independent position to which duties are attached” – it will not owe its existence to the incumbent or the outfit’s discretion.
For example, the role of manager or head of division in an organisation does not constitute an office because such posts “will normally only exist as long as the organisation wishes,” the Revenue’s guidance states.
It follows that IR35 will not apply to a worker simply because their job title at the client-outfit refers to them as an ‘officer’ if, in fact, their role does not amount to performing the duties of an office.
By contrast, IR35 will cover workers who use an intermediary, such as a limited company, where they are personally appointed to perform the duties of an office, regardless of whether they or their company are named as the office holder.
Similarly, IR35 is in play where an intermediary (such as a personal services company) is appointed as a corporate office-holder; provides the worker to carry out the duties of that office and the worker’s personal services are required.
On its website, HMRC identified two further scenarios to be put in reach of IR35 - the Intermediaries Legislation. Firstly, where a worker is engaged both as an office-holder and to perform other duties in circumstances when they would be regarded as an employee if they were engaged directly.
For example, IR35 would cover “a director also engaged as a chief executive who has some duties arising from their office but in addition has managerial duties whereby there are mainly responsible for the client company’s day-to-day activities.”
Secondly, the extension of IR35 can impact a worker whose earnings from an employment that have already been subject to PAYE/NICs by a client but where they are also engaged by that client as an office-holder. One example may be a salaried CIO of an outfit who is also engaged as that outfit’s director.
Despite HMRC providing these explanations - alongside the case law-based definition - employment status advisors are unsure whether the “clarity” it promised to provide to ‘office holders’ for IR35 purposes has been delivered.
Boox Accounting, a contractor accountancy firm reflected: “What is clear is that there will be a lot of initial confusion about the new IR3 rules, which will all be dependent on the facts of each unique scenario.”
Addressing contractors, the firm advised: “What is important is that you review your physical contracts; review… advice on drawing up contracts, and run them past your client[‘s] accountant before committing.”
A specialist on employment status, Qdos Consulting, agrees that uncertainty appears to be the only definitive result of last week’s attempt to clarify ‘office-holders’ for IR35 purposes, despite it calling on the Revenue to do so.
“The lack of clear and concise guidance as to what an office-holder looks like is disappointing and will only add another layer of doubt to the IR35 legislation, something that HMRC were at pains to avoid when they overhauled the administration of IR35 last May,” said Qdos’ Andy Vessey.
Speaking to ContractorUK yesterday, the former tax inspector added: “Simply relying on the section 5(3) ITEPA 2003 definition of the term ‘office’ and the judicial definition will not particularly help penetrate the IR35 fog.
“Whilst I appreciate that HMRC could not give an exhaustive list of who and who is not an office holder, the current guidance, if we can even call it that, does not provide any clarity to contractors.”
Serving to muddy the waters, a blog aimed at contractors purporting to be a factual news item claimed that, under the changes to Finance Bill 2013, “any contractor who works for only one client at a time” would automatically be caught by IR35.
This runs contrary to HMRC’s claim on its website that, apart from the extension to office-holders, the other rules relating to IR35 (including when the IR35 NICs rules apply) are “unchanged.” The blog’s author has since explained the piece away as an April Fool.
Shown the hoax post, specialist advisory Tax Networks condemned: “This [online] ‘report’ does not resonate with Resolution 13 clause 22, Finance Bill 2013. In other words, it is apparent nonsense to even suggest you need to have more than one concurrent contract to be self-employed and there is case law to support that.”
Martyn Valentine, of IR35 advisory The Law Place reassured: “There is no reference in the Finance Bill 2013 to extending the scope of the IR35 legislation to contractors who have only one client. A proposal along these lines would be foolhardy and fly in the face of previous judgments.”
Editor's Note: Further Reading -