Posted by James Pearson on 13 Sep 2013
Changes to IR35 for Office-Holders
From 6 April 2013, a small change has been made to s49 ITEPA 2003, extending the “IR35” legislation from just covering employment arrangements that are disguised by the use of an intermediary to also cover similarly disguised office-holder relationships.
Prior to 6 April 2013, most situations in which a person receives earnings from an office that they hold would be subject to PAYE. The PAYE legislation has not changed and this remains the case. However, in some circumstances, when an office-holder was paid through an intermediary, the PAYE regulations would not apply and income tax could be avoided on payments that the office holder received via the intermediary.
The IR35 Rules
The “IR35” rules are designed to catch employment arrangements that are disguised through the use of an intermediary (e.g. an individual effectively operates as an employee but instead of paying the individual directly payments are made to the individual’s own personal company) and these rules are now extended to catch similar situations that disguise office-holder relationships.
What this means in practice is that if you are an office-holder and receive payments directly in respect of that office, you will probably have been subject to PAYE on those payments and this will continue to be the case.
If you are an office holder, but the payments in respect of that office are paid to an intermediary, it is possible that PAYE has not been due on those payments, and if that was the case prior to 6 April 2013, it continues to be the case afterwards. However, it is likely that you will now be caught by the “IR35” rules. These rules do not mean that PAYE is due, but rather are a method of treating payments received by the intermediary company as taxable on you as employment income. This is provided for through a deemed payment at the end of the tax year. The rules for calculating this payment are complicated and a number of deductions are allowed.
The IR35 rules will apply to an office holder who receives payment through an intermediary if they are personally required to provide those services (e.g. a situation is not caught whereby the intermediary is under no obligation to provide any specific individual as an office holder. This would be hard to argue if the intermediary only had one suitable employee) or if they have a separate employment relationship (or a relationship caught by the “IR35” rules) with the client.
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