For any independent contractor it’s crucial from an IR35 perspective to be seen as just that; independent, and not as an integral part of the client’s organisation. It’s surprising therefore, how many times we see the term ‘director,’ (for example), stated as the services description in a contract for services.
The problem with job titles such as ‘director’ (for example), is that it doesn’t indicate that the services are going to be carried out independently but rather the opposite. It suggests that the work may involve complete integration within the client’s organisation. Such roles may also involve a high level of responsibility, for example over management and direction of staff, and may have some control over the budget of the client organisation.
If the title is simply that, a job title, this will not be a conclusive pointer of employment in isolation, however it could certainly make an IR35 enquiry more difficult to defend, particularly if the title is commensurate with the services being provided. If a contractor has been engaged to help run the end client’s business it’s going to be very difficult to argue that you’re not an integral part of that organisation.
If the job title reflects a board appointment, which has been created by charter or statute, this is a different matter and could mean that IR35 applies automatically for NIC purposes, under the Office Holders Legislation contained in ITEPA 2003, Chapter 1, Part 5. This is confirmed within HMRC’s own Employment Status Manuals (ESM2500) and HMRC have issued some examples of what may be considered office holdings; see ESM 2503. What is rather unhelpful is that there is no definition of an Office Holder, although we do have a judicial definition, confirmed within ESM2502;
"There is no statutory definition of the word ‘office’. It has been judicially defined 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.’"
As indicated above, where an individual is deemed to be an office holder then class 1A NICs will automatically be applicable, but it doesn’t necessarily mean that a tax charge would also apply. For a tax charge to apply there must also be a requirement for personal service. If therefore a contractor can demonstrate that they have a clear right of substitution then a tax charge may not apply. However, the right must be absolutely undeniable and if the services do require integration within the client’s organisation, it could prove difficult to argue that a genuine right of substitution exists.
The key message here is not to be too tempted by job titles which could cast doubt over your employment status. Ensure that your contract and working practices reflect the specialist skills and services being provided by your business, and that instead of a title, there is a clear description of the services being provided.
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