IR35 and Office Holders

Over the past decade, the government has gone on a crackdown of tax avoidance in the UK. One of the latest changes which was made, affecting the IR35 legislation, is that of the office-holder.

There is no statutory definition to the term ‘office’, but the judicial definition is that of 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.'

In true IR35 form, the definition lacks clarity as to who actually passes for an office-holder but it is likely that the majority of contractors will remain unaffected by the change. Those affected are workers making key decisions to the business, such as chief executives and chairmen as opposed to those holding managerial positions, although it remains unclear as to how wide the amendments scope actually goes.

Before the amendment made in the 2013 Finance Bill, office-holders were always subject to pay NICs as if they were a direct employee of their client, i.e. caught by IR35. As of 6th April 2013, the amendment extended this to income tax, meaning that those classifying as an office-holder would have to apply IR35 to their contracts for both tax and national insurance contributions.

The change came in order to close a loophole where those holding senior level positions in a business could avoid income tax. It is worth noting that simply being an office-holder will not suffice to put you inside IR35, but the requirement of a personal service (although this is likely to exist in almost all cases as those engaged in a senior position are likely to have been appointed for their personal skills). Only the test of personal service is relevant when it comes to office-holders, the other tests for IR35 are not considered, so if you are an office-holder and do not have an unfettered right of substitution, you will need to apply IR35 to the engagement.

If you think you might be an office-holder and need further assistance, please get in contact with us for professional advice on 0116 269 0999.

By:Jane Hailstone

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