- Tuesday, 02 April 2013 17:26
- Written by Andy Vessey
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.