IT contractor ‘genuinely in business’ beats IR35 claim

HM Revenue & Customs had its demand that an IT contractor pay £50,000 for ‘disguised employment’ under IR35 thrown out, after a court recognised the limited company owner to be a “genuine business” with a 20-year trading history.  

ECR Consulting Ltd, under its director Elaine Caroline Richardson, boasted “a variety of clients;” “retained reserves and invested in development,” during the disputed period, said the tax tribunal in dismissing HMRC’s claim.

Richardson, who was first approached by HMRC in November 2005, also operated out of “a dedicated business area at her home” in Leeds, and ran her own website and domain, registered in the company’s name.

Pointing to the taxpayer’s additional ‘badges of business,’ the tribunal highlighted in their judgement that ECR advertises its IT services, mainly software, and is a member of PCG, the freelancing trade group.

Accountax Consulting, which represented the taxpayer, confirmed that the tribunal recognised the worker’s engagement to be lacking the key employment characteristics, in terms of Mutuality of Obligation, Substitution and Control.

Having defended Richardson at the hearing, the firm’s director Mat Boddington commended the tribunal judges for having “their commercial heads on,” when assessing ECR’s contracts and working practices with the end-user, Vertex Data Science.

“[The tribunal] understood that contracting through a single person limited company is a prudent and sensible method of providing freelance services,” he said, “and not just about disguising employment.”

Chris Bryce, PCG chairman, seemed to agree by saying the “dark cloud of £50,000 in misapplied tax has been lifted”, thanks to the tax tribunal’s judges recognising the “realities of running a business”.

In some contractor circles, the judgement is being seen as evidence that the courts may start to adopt a narrower focus for deciding IR35 cases, as the tribunal did, by confining its assessment to the classic employment tests.

But one IR35 expert indicated that the existing case-by-case examination would prevail, preferring the real issue to be why it took HMRC so long to investigate and conclude with ECR, which was incorporated in 1993.

“The main question here; surely, is what on earth has been going for the last five years?” the advisor said. “After all, it’s not so difficult to prove being in business of your own account if you’ve been trading for more than 20 years.”

According to the judgement, due to published shortly and in full on the First-Tier Tribunal website, ECR Consulting “is a genuine business and therefore not the target of the IR35 legislation”.

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