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Clause 22 Extends IR35 Legislation

Office holders contained in clause 22 of Finance Bill 2013

Finance Bill 2013 was published last Thursday, clause 22 of which proposes amendment to the IR35 legislation to include office holders.

Clause 22 is titled, 'Arrangements made by intermediaries' and extends Chapter 8, Part 2 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 by revising section 49 (1)(c). This sets out the circumstances when IR35 applies and will now confirm

  • 'the circumstances are such that— 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
  • the worker is an office-holder who holds that office under the client and the services relate to the office'

The new provisions will apply where the worker is named as an office holder of the client but paid through their personal service company (PSC) and where the PSC is named as the office holder of the client. For the legislation to apply to office holders however there must also exist a requirement for the personal service of the worker.

The explanatory notes to clause 22 does no more than repeat HMRC's guidance found in their internal manuals. They point out that section 5(3) ITEPA 2003 provides a non-exhaustive definition of the term “office” but this only states that the term “office” 'includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.' The legislation is based on guidelines arising out of case law, in particular Great Western Railway Company v Bater (1922) and Edwards v Clinch (1981). It is because these are only guidelines that any explanation can only be non-exhaustive, so elucidates HMRC.  

According to HMRC an office is a separate and independent position to which duties are attached; an office does not owe its existence to the holder of an office or post or the discretion of an organisation. For example, the post of manager of a factory or a head of division in an organisation is not an office because such a post will normally only exist as long as the organisation wishes. It will not have the independent existence or endurance required to establish it as an office.

Contractors will now be confronted with another layer of IR35 fog which may take some time to lift.

By Andy Vessey


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5 thoughts on “Clause 22 Extends IR35 Legislation”

  1. Johnwg

    Do you think that a Non-Exec Director is an office holder?

  2. Andy Vessey

    HMRC have confirmed that non-executive directors will be caught for tax as well as NIC’s under the provisions of IR35 as from 06.04.13. Please follow HMRC link for further clarification

  3. Geoff Westmoreland

    To be safe, it looks like any Contractors with PSCs working for a client should now have an agent/third party between them and the client regardless of whether they may be classed as an “office holder”

  4. SD

    Any advice on Service question on P35?

    6. Are you a Service Company?
    A ‘Service’ company is one in which a worker performs services for a client under a contract between the client and the company. The worker is a shareholder in the company and the company’s income is derived wholly or mainly from the services provided by the shareholder personally.

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