Contractors' Questions: What are the changes to IR35 for office-holders?

Contractor’s Question: How has HM Revenue & Customs changed IR35 so that it will cover office-holders, and who in the contractor community is likely to be affected, in practice?

Expert’s Answer: On March 28^th 2013, the Finance Bill 2013 was published by the Treasury containing draft amendments to the IR35 legislation (as promised in the Budget 2013) to deal with limited company contractors acting as ‘office holders’ of their clients.

The Finance Bill 2013, at clause 22, essentially confirms that limited company contractors will no longer be able to operate outside the scope of the IR35 legislation when acting as an office-holder for their client.

The accompanying Explanatory Note is clear on this issue and confirms that the revised IR35 legislation will apply where an individual office holder is paid through an intermediary or the intermediary is appointed as the office holder of the client. 

This is likely to have a significant impact on interim managers using limited companies to provide services to clients where it is essential to be an office holder of the client in order to deliver the services. Unfortunately, such interim managers will become casualties of the forthcoming Finance Act 2013. However, this should NOT affect project managers who may exercise a degree of control over the client's employed workforce rather than the client itself.

Assuming Finance Bill 2013 receives Royal Assent in its current form, interim managers may either become direct employees of their clients or consider alternatives involving a contract between the interim and the client for the client's board of directors to act upon the interim's recommendations. The interim would remain independent of the board and therefore separate to the controlling mind of the corporate client. However, this approach would need additional research and is only likely to be of assistance to 'corporate trouble-shooters.'  

The expert was Martyn Valentine, founder of IR35 advisory The Law Place.