Contractors' Questions: Am I caught by IR35's extension to office-holders?

Contractor’s Question: As a non-executive director of three unconnected companies, two of which I have a small shareholding in, am I caught by the recently amended IR35 rules? I ask because I understand that HM Revenue & Customs has stated that fees for non-executive directorships are within scope of the strengthened Intermediaries legislation, given that it now covers ‘office-holders.’

Expert’s Answer: The change to which you refer was a statement from HMRC that, from April 6^th 2013, the IR35 legislation will apply to ‘office-holders,’ which includes non-executive directors.

The point HMRC is making with this amendment to IR35 is that any remuneration in respect of the holding of an office of a company, such as a director, should be paid via the company’s payroll, meaning it should be subject to PAYE and national insurance deductions. If this is not followed, then any payments made to personal service companies would then be subject to IR35.

It does remain possible to be a non-executive director of a company and also to provide consultancy services. But it is important to distinguish between money earned for being a director and that as a consultant. So while the consultancy can still be charged through a personal service company, any sum for being a director must go through the payroll.

In your circumstances, you will, therefore, need to have separate contracts for each role identifying the remuneration/fees payable in respect of each so the appropriate tax treatment can be applied.

The Expert was Chris Lane, partner at chartered accountancy firm Kingston Smith LLP.

Editor’s Note: Further Reading – Contractors’ Questions: What are the changes to IR35 for office-holders?