Dragonfly: High Court hears IR35 appeal

An IT contractor who was ordered to pay £99,000 in employment taxes under IR35 will today begin his second battle to overturn the ruling at the High Court.

The appeal by John Bessell, director of Dragonfly Consultancy Ltd, will argue that as a freelance system tester for the AA from 2000-2003 he was not tantamount to an employee.

It will be funded by the Professional Contractors Group, which warns that a rejection of his appeal could "undermine much of the successful defence against IR35."

Under existing case law, "one would expect Mr Bessell to be found outside of IR35," the group said, contrary to Special Commissioner Charles Hellier's ruling in January.

Mr Bessell's lawyers will argue he was subject to a low level of direction and control and had the right to substitute, albeit unfettered, but, the PCG said, "not unusually so."

The group believes that evidence put to SC Hellier, who also found MKM Computing Ltd to be caught by IR35, shows he was clearly in business on his own account.

Dragonfly provided all Mr Bessell's equipment and necessary training for the role, while he also worked for another client and went without holiday or sickness pay.

However, these "weak" pointers away from employment lead the SC to add there was "nothing which points strongly to…Mr Bessell [being]…in business on his own account."

At the time of the ruling, Bob, the retired tax inspector said that out of the two IR35 cases which the SC dismissed, Dragonfly was the strongest for future appeal.

"In my opinion the MKM case is more clearly one of employment," Mr Jones told CUK.

"Dragonfly is similar but not, in my opinion, as clear cut - the Special Commissioner, however, is still of the opinion that… Mr Bessell was a 'professional employee'."

Moreover, in their analysis of the case, the PCG believes "there was no ongoing obligation between him and the client."

If the client is obliged to provide work and pay throughout the contract period, and the contractor expects work to be provided, then this is an employment characteristic.

But Kate Cottrell, a former tax inspector, who now specialises in IR35, believes the mutuality of obligation element was present between the parties.

Speaking after the SC's ruling, she explained: "The judgment contains much about the correct approach to IR35 cases and in particular the approach to mutuality of obligation."

Coupled with the hefty sum of employment taxes Mr Bessell owes, these conflicting interpretations explain why the case will be watched with interest.

The PCG hinted contractors might be more jittery than interested: "If the appeal is rejected," the group warned, "the ruling could undermine much of the successful defence against IR35 established….in numerous cases since IR35 came into force."

Mr Justice Henderson will hear the IR35 case of Dragonfly Consultancy V Commissioners for HM Revenue & Customs today at 10.30am in court 60, though his ruling is not expected until mid-summer.

Thursday 5th Jun 2008