'Borderline' win for IT contractor in IR35 appeal

A self-employed IT analyst did not become "part and parcel" of the organisation he worked at, like an employee would, so does not owe employment taxes under IR35.



The judgement, published yesterday, from a tax tribunal means Novak Brajkovic, director of Novasoft Ltd, no longer faces PAYE, NIC and interest payments from 2000 to 2002.



During those years, and since 1998, the contractor worked at the premises of his client Avecia, a bio-tech firm, which provided all the IT kit for the projects he worked on.



Whether it was this provision, or his contract with agency Lorien that stated his firm was under Avecia's "direct supervision", Brajkovic was concerned about his employment status.



In January 2002, he approached HM Revenue & Customs through its 'email service for contracts' to ask tax officials whether IR35 might apply to his circumstances.



In response, HMRC made various enquiries, including interviewing Avecia staff, which, ultimately, led to HMRC demanding he pay tax from April 2000 to December 2002.



Confirming that HMRC saw the contractor as a disguised employee, Alan Hall for the Revenue told the tribunal that Brajkovic was effectively a full-time worker of Avecia.



During the disputed period, and before, Brajkovic "did not present an image of a businessman offering his services to the marketplace," the taxman told the hearing.



Rather, the contractor was "someone comfortable working for the same clients on terms equivalent to employment," Hall said, pointing to Brajkovic having a notice period of one month.



As well as not having to provide or fund any IT equipment, just like Avecia's own staff wouldn't, Brajkovic, like them, was working without a right of substitution.



Continuing HMRC's case, Hall said the contractor's billings were "broadly equivalent" to the hours of Avecia employees, and his holiday time was scarce.



However, Brajkovic enjoyed more flexibility in his hours than employees, Avecia said, and he claimed he bore training costs, for being excluded from a staff training scheme.



As in past IR35 hearings, many of HMRC's claims were based on evidence from the client whose accounts, in this case, contained errors or clashed with the contractor's.



Traditional pointers to employment, like mutuality of obligation and control, were, although present in Hall's eyes, not significant enough in the judge's view.



The closest the Revenue official seemingly came to swaying Tribunal Judge Peter Kempster was when he argued that Brajkovic became "embedded" into Avecia.



Not only did the contractor report to Avecia managers daily and weekly, but in doing so he also became "part of the Avecia IT project team structure for over four years."



And although during that time Brajkovic took one other paid job, building a website for a band, having only a "single master is indicative of employment," Hall enforced.



After that submission, judge Kempster responded: "Deciding, in a borderline case, whether a particular contract is a contract of service or a contract for services is notoriously difficult."



The response, taken from the Synaptek judgement, indicates judge Kempster found it a challenge to determine if the notional contract between Brajkovic and Avecia was, in fact, one of employment, as HMRC claimed.



Moreover, the admission will be seized upon by critics of IR35 as evidence that the complexities of establishing whether or not the legislation applies are significant enough for it to be repealed, or radically simplified.



Granting the appeal by Brajkovic, who represented himself at the hearing in December last year, judge Kempster said: "We consider that the overall picture painted is one of a contract of self-employment.



"An individual detail in the picture is that, as we have found, Mr Brajkovic would not have been permitted to supply a substitute to perform the work.



"That could be an important detail - and was given some emphasis in both Usetech and Dragonfly – but in the particular situation of Novasoft and taking the picture as a whole, that detail does not disturb the overall impression we have formed of the notional contract."