Revenue loses IR35 case against Marlen Ltd

A limited company contractor won an IR35 case brought by HMRC after the two elements which make up the irreducible minimum to demonstrate a contract of employment were found to be wanting.

Engineering contractor Gary Hughes, director of Marlen Ltd, heard that the test factors of control and mutuality of obligation (MOO) were insufficiently present when he worked at two divisions of digger-maker JCB.

Issuing its judgement, a Birmingham tribunal also said that Mr Hughes determined how he carried out the services, which were specified under a series of contracts with the construction equipment giant.

But the manner in which he carried out those services, HM Revenue & Customs argued at the hearing, had the appearance of being similar to JCB’s senior employees.

Although not a member of PCG, the freelance trade group understands that it was Mr Hughes’ flexibility in terms of his hours, holidays and absences that the tribunal saw as being markedly different to the employees.’ 

It was on this basis, when considered in light of other indicators relating to control of the worker, that the tribunal concluded that the degree of control JCB exercised was not sufficient to constitute an employment contract.

Turning to MOO, which HMRC argued existed within each contract, Judge Lady Mitting said: “The picture in relation to mutuality is even clearer. It is our conclusion that there is no mutuality of obligation”.

Although the full judgement is yet to be published, the determining factor against MOO was said to be that Mr Hughes and all other contractors at JCB were sent home, unpaid, during computer downtime, in an echo of the MBF ruling.

Both parties also exercised early terminations during the course of the engagements, the judgement is expected to show, further undermining HMRC’s claim that MOO existed within the duo’s contracts.

The PCG reflected on the tribunal’s apparent inability to find a single aspect of Mr Hughes’ work at JCB which was consistent only with a contract of employment.

The group said: “With such a string of defeats one asks whether HMRC will change their approach to IR35 cases, since it is becoming increasing apparent that the cases they are choosing to pursue are clearly not within the ambit of IR35.”

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