HMRC LOOSES IR35 CASE ALONG WITH INDUSTRY CONFIDENCE
A Capita contractor has overturned an IR35 case against HMRC in a victory that will surely spark questions as to whether recruiters can trust the Government over this much-contested tax reform.
In the First-Tier Tribunal Chamber IR35 case (Jensal Software Limited v Revenue & Customs) the court considered a working arrangement that took place between 28th May 2012 and 4th April 2013. The contract worker, who supplied his labour via a personal service company and through Capita, to the Department of Work and Pensions was believed by HMRC to be working inside IR35. However, contrary to the Government's belief, a Judge found that the worker's contract belonged outside of IR35 – primarily due to the absence of a sufficient degree of control over his working methods.
In addition, the Judge disagreed with HMRC's interpretation of mutuality of obligation and the right of substitution. Seb Maley, CEO of Qdos Contractor, the firm who represented the contractor worker in this case, commented that the ruling will have recruiters questioning the Government's IR35 expertise. He said: "Right now, recruitment Agencies will quite rightly be wondering whether HMRC is capable of managing IR35 reform. After all, in the public sector, it is now the fee payer - often the agency - that will be held liable for any resulting fines.
"If HMRC can't make the right calls, how are recruitment agencies and clients expected to?"
Dave Chaplin, CEO and Founder of ContractorCalculator also expressed his surprise at HMRC's pursuit of the case: "With the evidence being so compelling for the contractor, including a perfectly valid right of substitution, a lack of control and insufficient mutuality of obligation, one must question why HMRC pursued this case at all. It was a complete waste of tax payers money and court time."
Maley added: "Despite HMRC implementing and enforcing the rules, this verdict shows they can't accurately assess a contractor's IR35 status. The Government is serious about clamping down on what they believe to be non-compliance, but worryingly, can't recognise whether a contractor belongs inside or outside IR35. "That The individual was working on a Government project simply adds to the irony. This case is further proof that IR35 needs simplifying, and HMRC must rethink its IR35 strategy completely. Clearly, this is no time to extend public sector changes to the private sector."
This isn't the first time a contractor has successfully overturned a case against the Government. In March, a contractor won a case against HMRC. Again, the case relied on whether the worker had control and access to employment benefits. As the contract worker had limited control and no employment benefits, the tribunal found that the contract was not caught by IR35. Previously, HMRC have admitted that they hold no detailed information on the accuracy of the self-assessment tool which contractors use to make a decision if they are inside or outside of IR35.
SOURCE: Recruitment Grapevine