From April 2013 under measures introduced in the 2013 Finance Act office holders will become within the scope of IR35.
  • This measure is to ensure that persons holding managerial positions for end clients (such as government departments) cannot avoid tax and NICs by routing their income via a personal service company.

Does IR35 apply to office holders and management as well as workers?

In the course of your average contract a freelance worker rarely performs the duties of an office holder or managing director. However, in 2012 it was widely publicised that many senior civil servants who were running government departments were operating via personal service companies. It was also revealed that HMRC had investigated just 23 cases for IR35 in 2010/11, or these none related to government departments.

The government proposed new tax legislation to bring controlling persons into IR35, however following consultation it was decided to reinforce the existing legislation to ensure that office holders and management would come into the IR35 provisions.

Proposed changes are included in the 2013 Finance Bill to apply from April 2013:

Chapter 8 of Part 2 ITEPA 2003, section 49 (1)(c) wording substituted:

C) the circumstances are such that -

  1. if the services were provided under a contract directly between the client and 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
  2. the worker is an office-holder who holds that office under the client and services relate to the office

The position is now that IR35 will apply to acting directors. Brings non-executive directors and all those acting as termporary or part-time finance directors into the IR35 net. The position is discussed in more detail in our guide to IR35.

HMRC has subsequently made assurances to MPs that it will be investigating more cases for IR35, see IR35 review for thousands of companies

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