IR35 shows no sign of demise

Today CUK reports that one IT contractor has failed the Intermediaries Legislation and must pay £6,000 in NI contributions and £21,000 in PAYE tax.

Ruling in mid-September, Special Commissioner Charles Hellier rejected the IR35 appeal of MKM Computing Ltd, in a judgement that was made available only last month.

The Special Commissioner has been busy: on the same day he rejected the IR35 appeal of another IT contractor.

He said the Revenue was right to demand that the IT contractor pay employment taxes to the tune of £99,000 (analysis of the case will follow) .

In his judgement, Mr Hellier ruled that the IT contractor's company, Dragonfly Consultancy Ltd, had a very limited right of substitution.

Similar to the MKM ruling, the worker was found to be subject to the client's control and was in an arrangement where mutuality of obligation was present.

Two other Special Commissioner cases involving IT contractors also emerged in December: both Datagate Services Ltd and First Word Software Ltd won their IR35 appeals, and owe no monies.

Industry experts say this influx of IR35 judgements not only flies in the face of the popular belief that IR35 is dead.

But, worryingly, it also gives lie to the myth that the 1998 law is seen by HMRC as unenforceable, ineffective or a low priority.

The PCG reports its investigators have won some 1,447 IR35 or s660A battles against HM Revenue & Customs, while the latter has managed to win less than a handful - only four.

But figures seen by CUK show that when they are asked to consider IR35, the Special Commissioners have, most of the time, defeated the taxpayer and sided with the Revenue.

In fact, since 2001, HMRC has won eight such cases, two of which went to the High Court, while the taxpayer has won just five, the database of the Special Commissioners reveals.

Little wonder, then, that IT contractors are being urged by IR35 advisors to check their contracts and review working arrangements not where necessary but universally.


Wednesday 16th Jan 2008