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HMRC Lose IR35 Case As They Push Forward With Reform

It has been an eventful week for IR35

Late last week Qdos Contractor at last received news of a successfully represented IR35 tribunal, helping the contractor win a lengthy battle with HMRC. Soon after, the Government published its long-awaited consultation ‘Off-payroll working in the private sector’. The consultation will explore the very real possibility of introducing reform into the private sector, which has been expected ever since the suggestion was made for reform in the public sector a few years ago.

It is unfortunate timing that HMRC would release their consultation immediately after suffering yet another IR35 defeat, given this is the second recent case in which the contractor has come out on top.

JSL vs HMRC

Qdos Contractor are very pleased to announce yet another successful defence against IR35.

The most recent IR35 case, Jensal Software Limited (JSL) v Revenue & Customs, considered the working arrangements of Mr Ian Wells, a business analyst working on a public sector contract with the Department for Work & Pensions (DWP) via recruitment agency, Capita Resourcing Ltd, between May 2012 and April 2013.

After a three-day hearing last October, Judge Jennifer Dean concluded last week that Mr Wells’ contract belonged outside IR35, meaning he is not required to pay the £26,669 in tax and NIC that HMRC claimed he owed.

Our Head of Tax, Andy Vessey, who brilliantly fought Mr Wells’ corner, found that the case was largely won based on control, given the DWP lacked a sufficient degree of control over Mr Wells.  The Judge also disagreed with HMRC’s interpretation of mutuality of obligation and the right of substitution.

Mr Vessey also commended Mr Wells capability in dealing with the enquiry, along with the two very helpful witnesses from the DWP.

You can read Andy Vessey’s full account of the case here.

Public Sector

There is an element of irony in that, as the creators and enforcers of IR35, HMRC cannot seem to get it right. They were perhaps spurred on in chasing a case which was for everyone else, clearly outside of IR35, on the basis that the contract was in the public sector.

With HMRC’s intention to extend reform to the private sector, the case was a significant one. HMRC had the opportunity to show that they can accurately apply IR35, but their desperation clearly clouded their judgement, and yet again can be seen not only failing to understand key IR35 tests such as Mutuality of Obligation, but also going against their own Charter to “give you a service that is fair, accurate and based on mutual trust and respect”.

Mr Vessey noted the Inspector’s lack of willingness to see the facts laid out, and instead look for ways in which to convince HMRC that the contractor was inside of IR35.

Private Sector Reform

As the second recent defeat for HMRC, this should have strengthened the argument against private sector IR35 reform, however it is clear from the consultation published last week that HMRC are keen to roll out what they deem as a resounding success.

Having analysed PAYE data covering the first 10 months of the reform (April 2017 to February 2018), HMRC found that there are an estimated 58,000 extra individuals being put through the payroll, resulting in an estimated £410 million in extra income tax and NICs for the Exchequer.

We have seen The Revenue praise time and time again the success of the reform (it is after all ensuring higher tax receipts, regardless of how many contractors are inappropriately placed inside IR35).

They boast in the consultation their ability to approach a public sector organisation in order to obtain information on a large number of PSCs at once and thereby open a single enquiry covering multiple workers engaged by the end client.

Despite further changes looking increasingly likely, we urge contractors to take all action that they are able to, including but not limited to, responding to the consultation document.

If not to prevent the reform itself, we can have an impact on the manner in which it is delivered, encouraging HMRC to learn from some of the mistakes made in the public sector.


Qdos Contractor are a leading IR35 advisory and contractor insurance provider, who have successfully defended over 1500 enquiries.

By Qdos Contractor

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10 thoughts on “HMRC Lose IR35 Case As They Push Forward With Reform”

  1. Phil the Pill

    For the last 12+ years I have been employed in the private sector as a contractor via an agency and work for a major multinational company. I transitioned from working under an umbrella company to setting up my own Limited Company. During this time the EU agency workers directive also kicked in. At all times I have complied with the various tax regimes and not sought to go down the road of minimum wage and massive dividends. My pay rate via the agency has an amount factored in that covers my requirement to pay employers NI. I believe this to be the key factor that needs to be enforced in any legislation for IR35 so that there is transparency. How the individual then structures their pay is then up to them. But attempting to avoid paying Employers NI is counter-productive. Claim the £3K relief instead.

    • Soprano

      If you’re deemed inside, ther there’s a deemed ‘employer’ – the actual entity avoiding employers NIC – so how is it that you need to stump it up? If you’re outside it’s not due at all.

      • Soprano

        Also what you personally want to pay and what the law says are two different things. Currently there is a massive unfairness in how this system works re ‘inside’ assessments. You can deny this if you like.

      • The Q

        “If you’re deemed inside, ther there’s a deemed ‘employer’ – the actual entity avoiding employers NIC – so how is it
        that you need to stump it up? ”

        Because any political party that makes it equitable
        potentially faces an “anti-business” PR sh*t storm.

        If the clients are liable en-masse, then you can guarantee
        there would be industry moves to change things to
        prevent them being “deemed employers” .

        “Big” business wants it both ways – avoidance of
        worker legal and financial (tax, sick pay etc) obligations
        while treating the worker as their own employee in terms
        of “bum on seat” control.

        Here is something one agency told me around the
        IR35 “year zero” date regarding changes in working.
        They said their clients were terrified of defining precise
        work packages at fixed price, even with payment on
        delivery (risk to the contractor) ,

        Their mentality was simply this :

        They may agree work based traditional MAN HOURS
        planning (projected cost and time) , so say X man hrs.
        However the contractor may well complete the work a lot
        quicker (Y man hrs) , and the client considered that they
        will have ‘lost’ Y – X hrs of “work” and money in the deal.

        This is the mentality of big clients, aided and abetted
        politically by govts and the tax man, and recruitment
        agencies who are complicit ( ‘as long as it doesn’t
        increase our operating costs, we are happy’ ) .

        • The Q

          ^Y – X ^ X – Y

        • Soprano

          I think you make entirely valid points. However, I will add that I do not find fault entirely with big business here. The government is responsible for the arcane tax regime and businesses competing in the modern economy -cannot- afford large bodies of permies anymore. There is simply too much red tape, risk and expense in hiring them. This applies even to temp workers. Therefore, bos contractors are attractive as an alternative. Given the legal realities of what entails being outside IR35, they can remain “outside” on the grounds of MoO and potentially RoS if the client is not stupid and/or the agency does not mislead or simply try to placate them.

          Moreover, bos contractors enjoy none of the advantages of an employee and simply are much easier to terminate. If the government disagrees they’re entrepreneurs, whatever, but this is not the same thing as a permie or even a temp and the tax system needs to catch up here. Taxing such individuals like permies whilst they enjoy none of the corresponding legal perks is ridiculous.

  2. Andrew Harrison

    A good win, a bit sad that HMRC took it this far. However the whole piece is basically a QDOS/Andy Vessey advert, they could at least try to be subtle about it.

    • The Q

      “However the whole piece is basically a QDOS/Andy
      Vessey advert, they could at least try to be subtle about it.”

      Is this entire site not essentially a QDOS satellite site
      (I cannot even recall how/when/why I registered to get
      their weekly emails – they take over an old job site or
      agency in the past ?? ) ?? 🙂

  3. The Q

    Just seems to be another case that follows the general
    pattern since the taxman started to try and enforce IR35 :

    1. Dogmatic attempts to establish the most tenuous links
    to case law when they believe it suits them

    2. Dismissal of same case law when it damages their
    cause

    3. A moron “tick list” of “inside IR35” indicators, when the
    courts repeatedly say that the status must be
    determined on the facts “as a whole” .

    They win when they can bully people (contractors,
    agencies, client personnel etc) into submission due to
    personal/financial stress.

    And seem to always lose in court when a contractor
    fronts up personally and financially to take them on.

    As a taxpayer, perhaps as the end employer of HMRC my
    money would be better served by getting in the money
    lost due to tax EVASION and not wasted on moron
    jobsworth Nazis trying to squash the little man with the
    likes of IR35.

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