IT contractors can't beat IR35 on their own

The Dragonfly case highlights the importance of constant vigilance when it comes to compliance generally and employment status compliance in particular. We are currently reviewing the judgment in great detail but it is clear from our initial review that the judgment does highlight some important points.

There was some comfort from the High Court in that it agreed with the current approach to issues such as substitution and Statements of Intention in that they are little use on their own. However, the judgment has created a stir with regard to control and non-project based assignments.

While previously the issue of control centred on how the work was to be carried out, which is not an issue for highly skilled workers, the judgement seeks to widen the control test to include how the work is allocated and reviewed by the client.

Dragonfly also clearly demonstrates the need to ensure that both the terms of the contract between contractor and agency are accurately reflected in the upper level contract between the agency and client. Agencies and clients will have to take some responsibility here as most contractors will never see these contracts, let alone change their contents.

This case has been a long awaited decision and provides a sensible reminder to the industry that IR35 is alive and must be considered by all contractors on all assignments they undertake.

It also reinforces the importance of contractors getting credible, professional advice from employment lawyers for all employment status decisions. Employment status remains an assignment-by-assignment determination and therefore the particular circumstances of each case are relevant.

The judgement also highlights the importance of the end-client relationship and how this is documented, via the contract for services, and operated on a daily basis. If end-clients genuinely want to support contractors and freelancers then they must play their part.

I believe that the flexible workforce in the UK is incredibly valuable to the economy and should be supported. However, judgments such as Dragonfly Consultancy losing its appeal, add to concerns that the industry is not fully understood or appreciated and professional contractors are losing out.

So despite the huge legislative shifts the contracting industry has experienced in recent times, Dragonfly demonstrates that the IR35 legislation remains key for self- employed contractors in determining employment status. We would always advise that contractors seek professional advice as to their IR35 status for each assignment in order to minimise the risk of unexpected tax bills.

Article written and provided by Martin Hesketh, managing director of Brookson, an IT contractor accountant.

Editor's note: You may be interested in our IR35 calculator