Contractor defeated in IR35 appeal

The contractor, who cannot be named for legal reasons, lost his appeal against HM Inspector of Taxes over the application of IR35 to a six-month work contract in a case heard before a single commissioner on the 3 August 2001.

He worked through his own limited company for a bank for almost seven years, during which he contracted with an agency and also directly with the bank. During the period in question, he was contracted via an agency and the case focused on National Insurance payments rather than PAYE.

The tribunal ruled that he was liable under IR35 for the following reasons:

The contractor provided a personal service, he was required to work a given number of hours a day, he was subject to the client’s control (although he was not told how to do his work), he did not hire his own employees, he did not provide any equipment and was not subject to any financial risk or opportunity to profit or loss.

In addition, he was part and parcel of the client’s organisation, provided services exclusively for the bank and the length of engagement had an element of permanency- he had worked there for seven years.

The special commissioner ruled these facts outweighed those in favour of IR35 not applying such as the intention not to be an employee, the lack of sick pay or holiday pay, the lack of job security and the custom in the industry for contractors to be treated as self-employed.

According to Lawspeed, a company which specialises in advising IT contractors on their legal rights, the contractor did not assist his situation by representing himself.

Lawspeed said the contractor did not support his arguments with case law nor was he in a position to refute the case law cited by the Revenue.

‘Where a contractor does not put forward any case law to support his arguments then the commissioners will have little option but to find in favour of the Revenue,’ the legal advisers said.

Lawspeed managing director Adrian Marlowe said it is vitally important to have proper representation when facing the Revenue.

He added: ‘Contractors with a genuine business operation who have sought advice and negotiated effective contracts should not be too worried by this result.

‘Decisions by the Special Commissioners do not set legally binding precedent but they may be of influence in other hearings before the Commissioners’.

A spokesman for Lawspeed told the contractor could appeal against the ruling in the Chancery division of the High Court, ‘but only on a point of law, not on a point of fact’.


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