IR35 Legislation – New Government Proposals

Last week, UK Chancellor George Osbourne delivered his Autumn Statement with just one reference to changing legislation impacting contractors and freelancers in the UK. This reference was that the Government was to abandon their proposals on ‘controlling persons’ whom they described as contractor who have a significant control over people and budget at the client’s place of work.  An inkling was provided however that legislation was being looked at.

Today has seen that new development in relation to IR35, legislation introduced back in April 2000, which will impact UK self-employers workers who operate through their own Personal Service Companies (PSCs).

Is your contract now within IR35?

The strengthening of the legislation takes the form of a single clause – extending it to limited company contractors who are ‘office holders’ of their clients.  The strengthening of this clause has been published today by the Treasury.

Without this new clause, someone operating through their own limited company, if engaged by the end client, would be considered a normal ‘office holder’ of the client, if it was not for the PSC, and would therefore fall outside of IR35.

Ultimately, this change means IR35 will (if the amendment is approved) apply to office holders engaged through a third party intermediary, such as a personal service company, thus increasing the likelihood of your contract being inside IR35.

Clause Changes

The clause in question is Subsection 49 of the Intermediaries Legislation, the full clause of which is as follows:

“In Chapter 8 of Part 2 of ITEPA 2003 (application of provisions to workers under arrangements made by intermediaries), in section 49 (engagements to which Chapter applies), in subsection (1), for paragraph (c) substitute –

“(c) the circumstances are such that –

(i)     if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client, or
(ii) the worker is an office-holder who holds that office under the client and the services relate to the office.”

What does this mean?

If you are concerned about how this may impact you, or if you think you may be caught by IR35, speak with your dedicated client accountant.

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