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IR35: Freelancer working on Government project wins HMRC tax battle

A freelancer wins his battle with HMRC over his tax status. Given chaos surrounding The NHS, The BBC and the taxing of freelancers, this casts doubts over the Government’s ability to police and implement IR35 tax which impacts 2million workers

IR35: Contractor working through agency on Government contract wins battle against HMRC

Yesterday, a contractor represented by IR35 specialist, Qdos Contractor, won his First-Tier Tribunal Chamber IR35 case against HMRC, raising new questions over the Government’s own understanding and policing of the rules.

Jensal Software Limited v Revenue & Customs considered the working arrangement between 28th May 2012 and 4th April 2013, in which Mr Ian Wells provided business analyst services through a personal service company (Jensal Software Limited), via an agency (Capita Resourcing Ltd) to the Department of Work and Pensions (DWP).

The hearing took place between 4th – 6th October 2017, and yesterday, Judge Jennifer Dean decided Mr Wells’ contract belonged outside IR35, primarily due to the absence of a sufficient degree of a right of control over Jensal’s working methods. In addition to this, the Judge disagreed with HMRC’s interpretation of mutuality of obligation (MOO) and the right of substitution.

Despite the working arrangement taking place before public sector IR35 reform in 2017, the result casts further uncertainty on HMRC’s ability to accurately recognise IR35 status.

Seb Maley, Qdos Contractor CEO, commented:

“Firstly, we’re delighted to have helped Mr Wells win this case. Fighting IR35 places a huge burden on a contractor, so we’re thrilled to have successfully represented him, meaning he can now work without this hanging over his head.

“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 is the latest blow to HMRC after a contractor successfully overturned a First-Tier Tax Tribunal result in March.

Seb Maley commented:

“In addition to showing that IR35 cases can actually be won in court, this case will likely lead contractors, agencies and engagers to rightly ask questions of HMRC’s ability – particularly since public sector reform means the fee payer holds IR35 liability and would be required to pay potentially colossal fines.”

This was the second time Qdos Contractor’s head of tax, Andy Vessey, successfully represented the individual, who also faced an IR35 case in 2004:

Seb Maley commented:

“This is Mr Wells’ second IR35 case, which raises yet another question, this time over HMRC’s targeting of contractors. For a worker to be subject to an IR35 investigation is one thing, but twice is almost unheard of – I can’t recall another situation where a contractor has been investigated two times. You wonder whether HMRC is deliberately and wrongly targeting certain individuals.”

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