Contractors' Questions: Who are 'office holders' under the new IR35?

Contractor’s Question:  Who or what is an office holder, as referred to in the statutory amendment to the IR35 legislation?

Expert’s Answer:  The government has made a small change to IR35 to correct an anomaly which may allow individuals who are ‘office holders’ to avoid income tax. 

The change will put beyond doubt that IR35 applies to office-holders - namely those holding specific positions in organisations, normally at a senior level, for income tax purposes.

The expert was Sarah Gibbs, head of tax at HM Treasury press office.

Expert’s Answer: Whilst there is no statutory definition of 'office holder', there is a judicial definition of 'office' that is referred to in HMRC's status manual as 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.'

'Office holder' will have to be defined as to how it applies to the proposed addition to Part 2, Chapter 8 ITEPA 2003. The extension to the current legislation will require not only for the person to be an office holder but also their personal service for IR35 to apply.

The expert was Seb Maley, a director at IR35 advisory Qdos Consulting.

Expert’s Answer: Under the draft Finance Bill 2013, the IR35 rules are to be amended so that they specifically apply to arrangements where a worker is either appointed as an office holder of the hirer, or is regarded for income tax purposes as an office holder.

Whilst an ‘office-holder’ would normally be regarded as someone holding a formal position such as a director or company secretary, under the income tax rules it has a far broader meaning.  Such a person would certainly be caught but under the meaning in the Act on the face of it so would anyone appointed to any regular position in the client organisation wherever the position is not personal.

The intention appears to be to broaden the scope of the legislation to catch any contractor who is regarded by HMRC as supplied to a specific position within an organisation. This would seemingly cover any management role unless the role is purely linked to a project being undertaken by the contractor, where the client could appoint a successor. Particularly affected will be interims who by definition generally temporarily fill a specified position, and senior managers in charge of elements of the clients’ workforce or ongoing arrangements.

The new proposed rules are so wide that even contractors who work in non management positions other than for a clear limited purpose would be caught. Far from being a victory for contractors this appears to be a major strike by the government against personal service contractors.

The expert was Adrian Marlowe, founder of recruitment law firm Lawspeed.