HMRC has published further guidance on IR35, including the definition of an “office holder”.

Wednesday 3 April 2013

True to the promise made by the chancellor in last month’s Budget, HMRC has finally published fresh guidance on IR35 legislation - though not all contractors will be entirely happy with the result.

The Finance Bill 2013 was published in full at the end of last week and included draft amendments to IR35 legislation. Specifically, HMRC has sought to clear up the long-running and well-documented confusion shared by many contractors over the definition of an “office holder”.

From April 6th, an office holder will be defined as a worker holding “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.”

HMRC used legal precedent to settle on a final description of an office as a  “separate and independent position with duties attached to it”. Unlike management roles or positions at the head of divisions which may come and go as required by the company, offices are more static, fundamental roles. As a result, contractors who are only fulfilling that role for a limited period of time will still fall under IR35 legislation.

Essentially, HMRC has made it clear that a limited company contractor who is acting as an office holder on behalf of their client will in fact be subject to IR35. The updated rules will apply wherever the individual office holder is paid through an intermediary such as an umbrella company. If that middle-man is itself appointed as the client’s office holder, the IR35 legislation will still apply.

If it is essential that a contractor acts as an office holder for their client in order to provide the services the client needs, this definition is likely to make a real difference to both their work and their take-home pay. However, it is worth remembering that IR35 will only apply on earnings which have not already been subject to income tax and National Insurance contributions.

So what are the options? The first option is to become a direct employee of the client, although this might be a step too far for many contractors who pride themselves on the independence afforded them by their chosen way of working.

Speaking to Contractor UK, Martyn Valentine, founder of IR35 advice service The Law Place, suggested that the alternatives might even involve a contract between and interim manager and their client saying that the client company’s directors will act upon the recommendations made by the interim. This would keep the contractor fulfilling the interim role separate from the company. However, Mr Valentine said that contractors would need to carry out more research before deciding on the best option for them as this method may not be suitable for everyone.

Contractors are still unlikely to be happy with the guidance they have been given, however. HMRC does acknowledge that its definition is “non-exhaustive”, but this will mean many contractors with complex relationships with their clients may still be unclear on whether they will be subject to IR35. In the quest for a full picture of how the legislation will affect contractors, it seems there may still be some waiting to do.

By Victoria McDonnell

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