IR35 cases rise to prominence again as contractor wins appeal

IR35 Cases Rise to Prominence again as contractor wins Appeal

MDCM Ltd v Revenue & Customs Tier 1 Tribunal
HMRC were defending their decision in a Tier 1 tribunal that a contract between Mr Daniels’ personal service company MDMC Ltd and Recruitment Agency Solutions, which provided his construction services to Structure Tone Ltd, should have been “caught by IR35”.
Amazingly, neither party was represented by a barrister – perhaps HMRC may choose to revisit this tactic going forward!

Read the full article here: https://www.gov.uk/government/news/government-to-consult-on-tax-avoidance-in-the-private-sector

Summary Judgement
One of the main factors in the Tribunal decision centred on the fact that Daniels was not entitled to employment benefits, and therefore would not have been an employee if he had been engaged directly. HMRC rather confusing argument was that he got these rights by virtue of being an employee of his own company!

Factors Indicative of Employment

Factors Indicative of being an Independent Contractor

No substitution permitted (though it was a contractual right)

Daniels was not controlled by STL any more than any other contractor

There was Mutuality of Obligation (though the contract stated there was not)

Daniels could refuse to work on another site

Daniels took no financial risk

He was paid a fixed rate per day

Safety equipment was provided by STL

No notice period

No sick pay or holiday pay

No employment benefits

No expenses paid for travel or accommodation

He was not integrated into ST

Interesting Points
In evaluating the overall situation, the FTT decided that Daniels was not treated as an employee and IR35 did not apply. The case shows that one factor should not override all other factors (including whether someone is ‘part and parcel of the organisation’), and the relationship as a whole should be considered.

The tribunal found that there was mutuality of obligation, which has raised eyebrows but is unsurprising – there generally is – and the finding that Mr Daniels was outside IR35 rested on other factors.

The judge looked at the kind of rights that come from employment (pension contributions, sick pay, holiday pay etc.), saying that these were big differences when compared to what Mr Daniels would have got, were he an employee of STL.

On the face of it, it appears the Tribunal may have ignored some important elements of case law so HMRC may have grounds for appeal

Going Forward- what Steps should you take as an accountant or a contractor
The recent flurry of FTT cases, combined with last year’s Off-Payroll working in the public sector legislative changes only serve to underpin how difficult it is to navigate the intermediaries’ taxation legislation.

Worryingly things could become even more complicated if the Off-payroll Working legislation is extended to the private sector becomes reality.

One of the factors HMRC inevitably considers when determining whether to peruse a case if whether IR35 was considered at the inception of the assignment. It is important to record the reasons an “outside IR35” judgement was made and record these. My Digital accounts unique IR35 tools allows the recording of the IR35 assessment and saves it against the contractor record.

Simples!