Enacted in the Finance Bill 2013, any income derived from an office-holding position is taxed as employment income, therefore determining any office-holder engaged via an intermediary (PSC) as inside IR35.
HMRC considers that for an ‘office-holder’, NICs will always be applicable on earnings “...if a worker is an office-holder the IR35 NICs rules apply whenever the worker’s services are provided.” This has always been the case, even prior to 6th April 2013.
From 6th April 2013, for tax purposes, tax is also applicable where a worker is undertaking an office-holding and there is a requirement for personal service. If there is no requirement for personal service, i.e. you could provide a substitute, then the ‘office-holder’ provision will not apply, but it would be necessary to prove to HMRC in an enquiry that there is a very strong argument in this respect. The difficulty with office holdings is that it can often be more difficult for another person to pick up the work due to the nature of the role and level of responsibility, therefore, it is extremely difficult to prove that personal service is not required.
An Office Holder is where a role is created by statute and appointed to a board of directors. However, what may appear to be an office-holder position, may just be a job title (such as ‘Director’) rather than being an actual office holding for which IR35 applies.
HMRC defines an office holder (ESM2502) using the judicial case of Rowlatt J in Great Western Railway Company v Bater 8TC231 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.’
HMRC also notes that the more recent case of Edwards v Clinch 56TC367 adds a proviso to this definition that “a post need not be capable of permanent or prolonged existence but it must have an endurance at least beyond the tenure of one man.”
It is important to note that being the Director of your own PSC does not constitute as an office-holding position. The provision refers to the role held within your end client’s organisation.
Some contractors may take on a role with the title of ‘director’. It is important for the contractor to determine whether this means they are filling an office-holding position, or if this is just a title, as this could affect your IR35 status.
Here are some questions to consider in order to establish whether the ‘office-holder’ provision applies to your engagement:
- Was the role you are contracted to provide in existence before you took the position, and/or will it remain after you vacate the position or was it created specifically for you and will not be filled after you leave?
- Were you / will you be appointed to the board by an ordinary resolution passed by the company shareholders, or by a resolution passed by the board of directors?
- Do you have any Director-like responsibilities on behalf of the end client (Such as creating budgets, or high level management decisions)?