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HMRC internal manual

Employment Status Manual

Particular issues: office and office holders - when IR35 applies

Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 8, section 49

Social Security Contributions (Intermediaries) Regulations 2000, regulation 6

Social Security Contributions and Benefits Act 1992, section 2(1)

When IR35 applies and a worker provides their services via an intermediary as an office-holder (ESM2502) the rules are different for tax and NICs purposes. It is important to establish when the worker’s services are provided.

IR35 - NICs provisions for office-holders

The IR35 NICs legislation has always applied to office-holders. The IR35 NICs rules apply where a worker would have been an employed earner of the client if there had been a direct contract between them. The term “employed earner” includes a person who is gainfully employed in the United Kingdom in an office with earnings chargeable to tax as employment income. Therefore if a worker is an office-holder the IR35 NICs rules apply whenever the worker’s services are provided.

IR35 - tax provisions for office holders

From 6 April 2013, IR35 tax legislation specifically includes office-holders. Therefore the IR35 rules apply for tax purposes when an office-holder’s services are provided on or after that date. This includes when:

  • an intermediary is appointed as a corporate office-holder, provides the worker to perform the duties of that office and the worker’s personal services are required
  • a worker is engaged both as an office-holder and to perform other duties in circumstances when they would be regarded as an employee if they were engaged directly by the client, (For example, a director also engaged as a CEO who has some duties arising from their office but in addition has managerial duties whereby they are mainly responsible for the client company’s day to day activities).
  • a worker has earnings from an employment that have already been subject to PAYE/NICs by a client but they are also engaged by that client as an office-holder (eg the salaried Chief Financial Officer of a charity who is also engaged as a director of that charity).

Before 6 April 2013, if the worker’s only relationship with a client was as an office-holder, the IR35 tax rules did not apply. This was because the tax provisions only applied to services performed before that date when a worker would be regarded as an employee except for the presence of the intermediary but office-holders are not always employees. For example, a non-executive director who was not involved in the day to day running of a client’s business would not be subject to the IR35 tax provisions for services performed prior to 6 April 2013 when performing their duties as holder of the office of non-executive director. However, they would be subject to the IR35 NICs provisions as explained above.