AbFab Consultancy Ltd: IR35 victory for IT consultant

An IT consultant who has been under an IR35 investigation for almost three years has won her "stressful" battle against the Inland Revenue, according to freelance specialist, Bauer & Cottrell.

Sally Howitt, director of AbFab Consultancy Ltd, was first approached by the Revenue in November 2001 when she became subject to a dreaded Employer Compliance Review.

Her case is just one of three successful IR35 cases in the last week, that stands out because the Revenue ignored her contracts and went direct to the end client.

"My message to anyone finding themselves in this situation is not to give in," said Howitt. "I have always run a professional business and believed that I was outside IR35. It has been a very long, stressful hard slog but with the right advice my case is now won and I can put this behind me."

Contractor UK asked legal consultants Bauer and Cottrell about the current climate of IR35 investigations, after the firm's success in the last week.

"For the last six months many cases have started out as an IR35 investigation and quickly turn into an investigation under Section 6660A as well," warns Kate Cottrell.

"IR35 has not gone away," she said. "There are many hundreds of IR35 status cases currently being defended and we have no doubt there will be many more, not least because the Revenue has announced an increase in status resources of 50 per cent from April 2004 - that's now!"

The firm, which won the case without needing to appeal to the Tax Commissioners, recommends contractors seek professional advice at an early stage, ideally before they start their first contract.

Contract specialist, Egos Ltd, explains: "The test for whether a contract is (and always has been) within IR35 or not depends on the question of whether or not the individual would be regarded as an employee of the client, were the contractual relationship direct."

"Thus, the actual nature of the real world relationship - ie what in fact goes on day to day - is a key factor. But the statute expressly provides that the circumstances to be taken into account in looking for the answer to that question include the terms of the contracts forming part of the arrangements."

Roger Sinclair, legal consultant at Egos, adds that it follows that "the terms of contract must always be taken into account."

"I have to say that it is a mystery to me why the Revenue on this occasion seems to have felt they could be ignored," he said of the Howitt case.

"No one can decide employment or IR35 status without taking into account the underlying legal responsibilities and obligations accepted by each party, and there are many situations where those underlying legal responsibilities and obligations may be wholly inconsistent with an employment-type relationship."

"Provided those underlying matters represent a genuine structuring of the legal relationship in a particular way (ie provided the parties do genuinely intend the document to have the effects for which it provides), then those underlying matters cannot be disregarded, and can often carry the day."

Thursday 4th Nov 2004