IR35: Intention of Parties

Intention of parties can be relevant

Whilst the intention of two parties to create a self-employed relationship is, in the main, a minor and less significant factor when considering employment status, nevertheless it does have a role to play.

Where other factors point towards self-employment little heed needs to be paid to intention but where a contractor’s status is in the balance this status test takes on an importance of its own, as it is used as a tie breaker. This was the case in W F and R K Swan (Hellenic) Ltd v The Secretary of State for Social Services, QBD (1983) where tour couriers were found to be independent contractors because this was the declared intention of the parties, and the other factors were neutral.

In Dragonfly Consultancy Ltd v HMRC (High Court) (2008), HMRC submitted that, “as a matter of law, the hypothetical contract required by the IR35 legislation must be constructed without any reference to the stated intentions of the parties.” Thankfully the judge did not agree with this contention, stating, “If the actual contractual arrangements between the parties do include statements of intention, they should in my view be taken into account, and in a suitable case there may be material which would justify the inclusion of such a statement in the hypothetical contract. Even then, however, the weight to be attached to such a hypothetical statement would in my view normally be minimal, although I do not rule out the possibility that there may be borderline cases where it could be of real assistance.”

When Andrew Tilson, a contractor, took Alstom Transport to the Court of Appeal in 2010, in his successful claim for unfair dismissal, Judge McMullen made the point that it was Mr Tilson’s intention to remain a contractor despite Alstom’s attempts to recruit him as an employee. The judge stated, “The intention of the Claimant [Tilson] was to remain an independent contractor, and the intention of the Respondent [Alstom Transport] was to change that so as to bring him onto the staff. Thus, if the intention of the parties was looked at, the relationship was only one of independent contractor.”

So don’t dismiss this minor test entirely as it could tip the balance in your favour when it comes to IR35.

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