Contractors working on assignments where they are classed as ‘office holders’ are set to lose their exemption from IR35, under which they have not been required to pay income tax on remuneration for office-holding duties if caught by the legislation.
The new measures, revealed in the draft Finance Bill 2013 just published by the Treasury, will come into force in April 2013 following the March 2013 Budget. No other changes to IR35 are planned, so genuine contractors will remain unaffected.
The IR35 update follows Chancellor George Osborne’s decision to drop the controlling persons legislation proposals announced in the Autumn Statement. The Treasury’s explanation for doing so was: “... because HMRC’s new approach to policing IR35, along with the measures introduced in the public sector this year, are sufficient to prevent the loss through disguised employment in this way.”
The Autumn Statement confirmed the Treasury’s intentions by saying: “the government is strengthening the existing intermediaries’ legislation (IR35) to put beyond doubt that it applies to office holders for tax purposes.”
Previously, ‘office holders’ were exempt from paying the income tax element of IR35 legislation on their remuneration for office-holding duties, although they were still required to pay National Insurance Contributions (NICs) on any payments received for the office-holding role and any associated consulting fee income.
The Chancellor is thought to have been prompted to introduce the measures following the ‘Ed Lester affair’. Media and political pressure then mounted after subsequent investigations into off-payroll workers in the public sector. This resulted in the public sector’s ‘off-payroll rules’ being introduced across central government departments in September 2012.