ESM3268 - Particular issues: offices
A company director holds an office. Any emoluments/earnings
arising from a directorship are therefore chargeable as employment
income and subject to Class 1 NICs. Making a payment to a personal
service company for the provision of office holder duties of an
individual does not always alter the character of the payment,
therefore before considering the application of IR35 the
contractual arrangements should be reviewed to establish whether
such payments should be subject to PAYE by the payer.
When considering IR35, it should be remembered that the IR35
tax legislation only applies in circumstances where an individual
would have been an employee of a third party if there had been a
direct contract. An office-holder is not always an employee.
Therefore, if the individual’s only relationship with the
third party is as an office-holder, for example as a non-executive
director, the IR35 tax rules will not apply.
Office-holders are caught by the National Insurance
regulations; therefore if the individual’s relationship with
the third party is an office-holder the IR35 NICs rules apply. A
deemed payment must be calculated by performing the workers
attributable earnings calculation at Section 7 of Social Security
Contributions (Intermediaries) Regulations 2000. This is because
the National Insurance regulations apply where an individual would
have been an “employed earner” of the third party if
there had been a direct contract. The term “employed
earner” includes a person who is gainfully employed in the
United Kingdom in an office with emoluments/earnings chargeable to
tax under Schedule E/as employment income. This will include a
non-executive director whose remuneration would be taxed under
Schedule E/employment income if the intermediary did not exist.
Both the IR35 tax and NICs rules may come into play where
other services, such as consultancy services, are also performed
for the client through a personal service company. In those
circumstances the individual might have been both an office- holder
and an employee, if the relationship with the client had been
direct. Whether or not the legislation would apply will, of course,
depend on the facts.
(This text has been withheld because of exemptions in the
Freedom of Information Act 2000)
