Finance Bill could spell the end of IR35 ‘tax avoidance’ for interims and contractors in roles

True to its promise in the Chancellors Autumn statement the government has drafted legislation to tighten IR35 tax laws following the recent “controlling persons” consultation.

Under the intermediaries rules known as IR35, applicable since April 2000, a contractor intermediary is obliged to treat the majority of income from its contracts as employment income of its worker if the worker would be regarded for income tax purposes as an employee of the hirer. This law has had a major impact on company contractors, many of whom have adjusted their working practices and contracts in order to avoid the application of the rules.

However under the draft Finance Bill published today the rules are to be amended so that they specifically apply to arrangements where a worker is either appointed as an office holder of the hirer, or is regarded for income tax purposes as an office holder. The rules will come into force when the Bill is enacted in April 2013 unless amended.

Adrian Marlowe, Managing Director of the recruitment law specialist Lawspeed, explained “ Whilst ‘an office-holder’ would normally be regarded as someone holding  a formal position such as a director or company secretary, under the income tax rules it has a far broader meaning.  Such a person would certainly be caught but under the meaning in the Act on the face of it so would anyone appointed to any regular position in the client organisation wherever the position is not personal.”

The intention appears to be to broaden the scope of the legislation to catch any contractor who is regarded by HMRC as supplied to a specific position within an organisation. This would seemingly cover any management role unless the role is purely linked to a project being undertaken by the contractor, where the client could appoint a successor. Particularly affected will be interims who by definition generally temporarily fill a specified position, and senior managers in charge of elements of the clients’ workforce or ongoing arrangements.

Marlowe concluded “The new proposed rules are so wide that even contractors who work in non management positions other than for a clear limited purpose would be caught. Far from being a victory for contractors this appears to be a major strike by the government against personal service contractors.”

Lawspeed is holding a seminar on various tax related issues including IR35, Managed Service Company developments, and offshore rules, to be held in Manchester on 18th December 2012.

New IR35 rules threaten contracting – rules to be explained at upcoming Lawspeed seminar – 3 days left to book!
Controlling persons out, but supply workers and schemes still in spotlight