Having decided to abandon the 'controlling persons' proposals it was going to be necessary for the taxman to address the anomaly of 'office holders' being able to escape IR35, writes Andy Vessey, senior tax consultant at Qdos Consulting, as such persons were not defined within the legislation. NICs, however, are still applied to the fees from such a role.
No legal definition of office holder
There is no statutory definition of the word ‘office holder’ but there is a judicial definition of ‘office’ that is referred to in HM Revenue & Customs’ status manual, viz, “ permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders.”
Case law offers some answers
In the early 1980s case of Edwards v Clinch, the judge described an office as “ a post which can be recognised as existing whether it be occupied for the time being or vacant…it need not be capable of permanent or prolonged or indefinite existence, but it cannot be limited to the tenure of one man.”
When the case reached the House of Lords, it was further added that 'office' “ must denote a post to which a person can be appointed, which he can vacate and to which a successor can be appointed.”
When an office is established
An office may be created by a charter, statute or other document which is, or forms part of, the constitution of an organisation or which governs its operation, e.g. company director and company secretary. It may also be created by custom but in the absence of any written authority there must be a long-standing practice or unwritten constitution which makes the existence of the office clear.
Who office holders aren’t
HMRC's status manual provides an example of a manager of a factory or divisional head of an organisation and states that such positions do not constitute an office because they normally only exist as long as the organisation wishes. They do not have an independent existence or endurance to establish them as an office.
Onus on the taxman
Hopefully, HMRC will provide a more substantive definition of what an ‘office holder’ is before the amended IR35 legislation becomes effective next April, otherwise further ambiguity will exist which will not enable contractors to be certain of their IR35 position.
Of course, having established that an office holder exists it will be necessary to prove that the personal service of the worker is a requirement of the contract before IR35 can apply.