As reported last week following the budget, HMRC have announced the latest changes to IR35 legislations via their website. IR35 tax legislation will now come into effect covering office-holders for the 2013-14 tax year onwards.
HMRC define an ‘office-holder’ as someone who has 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’. An office holder, such as a company director, does not necessarily‚ hold office‚ under a contract of service.
The change in the legislation applies when a worker’s personal services are supplied via an intermediary to perform the duties of an office, including when:
- A worker is personally appointed to perform the duties of an office.
- An intermediary is appointed as a corporate office-holder, provides the worker to perform the duties of that office and the worker’s personal services are required.
- A worker is engaged both as an office-holder and is obliged to perform other duties in circumstances when they would be regarded as an employee if they were employed directly by the client. (For example, a director also engaged as a CEO who has some duties arising from their office but in addition has managerial duties whereby they are mainly responsible for the client company’s day to day activities).
- A worker has earnings from an employment that have already been subject to PAYE/NICs by a client but they are also engaged by that client as an office-holder.
When a client engages a worker as an office-holder they should in the first instance determine whether they are liable to pay tax and NICs on any remuneration for the worker’s services to perform the duties of the office.
Paying a third party for those services does not necessarily alter the nature of a payment and, when appropriate, the client should operate PAYE and subject the worker’s earnings/benefits to NICs in the normal way. It is only necessary to consider the IR35 rules on any amounts that have not already been subject to tax/NICs as employment income.
At this stage, this guidance will apply from 6th April 2013. It will not however become official until the the Finance Bill 2013 receives Royal Assent which is planned for summer 2013.
What is clear is that there will be a lot of initial confusion about the new IR35 rules, which will all be dependant on the facts of each unique scenario. What is important is that‚ you review your physical contracts, review our advice on drawing up contracts, and run them past your client accountant before committing.
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