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.
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.
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.
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.