Just what is an ‘office holder’? Everyone seems to have an opinion; and, it has to be said, many of those opinions align closely with how easily the opinion holder might be able to get more cash out of contractors’ pockets.
So, what’s it all about? Well, contractors are once again being asked to justify their status, with no statutory definition of what they are or are not supposed to be. In the draft Finance Bill 2013, due to come into force in April 2013, IR35 has been extended to cover office holders.
HMRC does offer guidance on what it considers an officer holder to be. And there is a judicial definition of the word ‘office’, helpfully supplied in HMRC’s status manual. So, ‘office’ is defined according to income tax law. but there is no statutory definition of an ‘office holder’.
This means that, as with employment status, there’s no black or white answer and a whole load of shades of grey in between.
Opinion over the meaning of the legislation is split. On the one hand, some industry commentators are claiming that the scope of what an office holding role may include is so wide that limited company contracting is now effectively dead.
On the other hand, other commentators, such as PCG, are saying that it is likely that only very senior interims will be affected, and then only if they pass the tests of employment required under the full IR35 legislation.
Whilst we might not know the full scope of the change now, what we do know now is that an office holders’ avoidance industry has sprung up almost as quickly as you can say “cashing in”.
A lot of very clever contractors, recruiters and contracting service providers are already thinking hard about how to prove an office holder is not, actually, an office holder at all. A consensus seem to be forming around the phrase ‘project worker’.
And let’s remember that the high-level interim contracting space where the extension of IR35 is likely to have an impact, the contractors are often in the position of power because clients badly needs their skills.
So badly, in fact, that clients will no doubt be amenable to adapting contracts, assignment descriptions, working practices, reporting lines, and in fact whatever it takes, to ensure the contractor will come on board.
So, the government got what it wanted from the process – the opportunity to look tough, cracking down on the ‘shocking’ use of (perfectly legal) tax avoidance measures to masquerade as interims or consultants, when in fact they should be on the payroll.
But actually, as with so much other government policy on tax avoidance and evasion, it may all turn out to be window dressing. Business will continue as usual, because the only way to prove someone is an office holder may be by dragging them through successive tax tribunals and courts. And that’s unlikely, as HMRC doesn’t have the resources to enforce the powers it already has. In addition, there are likely to be so few genuine office holders as to make the process too expensive to bother with, even if HMRC wants to set precedents in case law.
Will HMRC really have the will and resources to take on a very small number of some of contracting’s savviest and highest achieving contractors, and their clients, to prove conclusively when a contractor is indeed acting as an office holder?