IT contractor Primary Path wins IR35 battle

Her Majesty’s Revenue & Customs subjected an IT contractor to “considerable emotional and financial strain” by pursuing him under IR35 for eight years, only for the case to be summarily dismissed at the first tier tax tribunal.

Speaking after the judgement, a relieved Phil Winfield also said the “stigma hanging over me and my business”- Primary Path Ltd – had finally been lifted since it first emerged in 2004, when HMRC initially approached him under IR35.

IR35 lawyers at Accountax Consulting, which represented Mr Winfield, say the tribunal was asked to determine whether the services Primary Path supplied to GSK, a pharmaceuticals group, were subject to the ‘deemed employment’ rules.

Operating through recruitment agencies, and supplying a specific project at GSK, Mr Winfield, as Primary Path’s director, was engaged to design and build a specialist interface during the period disputed by HMRC.

But problematically for the taxman’s case that Mr Winfield became an effective employee, the tribunal found - as a fact, that the services were carried out with little involvement from the client, other than checks for standard and quality.

So, the “level of control or supervision did not go beyond that which one would expect in the hiring of an independent contractor,” the judge said. Moreover, on his part of the GSK project, Mr Winfield had responsibility.

Turning to employment status tests other than ‘control,’ the tribunal said there was no obligation beyond paying for work done by the worker, and found his ability to propose a substitute worker was, also, inconsistent with employment.

In the judge’s eyes, the true position of the nature of the services was even more suggestive of self-employment, recalled Accountax, when applied under the ‘in business on account’ test.

Having applied the test, the advisor said it was then “clear” to the judge that the relationship between Mr Winfield and GSK was one of independent services, not that of employee and employer.

According to the PCG, of which Mr Winfield is a member, one quirk of his work with GSK which helped solidify his independent status was what the freelancing trade group characterised as a “pay-as you-go” relationship. 

Pointing to the soon-to-be-published judgement, the group said that remuneration totted up through hours worked, or based on an hourly rate, as practised by all external specialists - ranging from plumbers to professional services firms, appeared to be “key”.

However, for being the third failed attempt in recent months by HMRC to make IR35 stick, the case’s significance for most contractors may well be that “once again,” the tax authority has misapplied the legislation.

“We are still fighting IR35 on all fronts”, the PCG added. “This means meeting HMRC both in the courts to defend individual cases and at policy level in the IR35 Forum to stop these misapplied cases happening in future.”

Despite the series of IR35 defeats for the Revenue, starting with IT contractor business ECR Consulting and followed by engineering specialist Marlen Ltd, Accountax advised all contractor limited companies “not [to] be fooled into thinking that HMRC will change tactics”.

“For every Phil Winfield out there brave enough to take on HMRC because he is represented”, the firm’s director Matt Boddington explained, “there are hundreds of contractors who bow down to HMRC because they did not seek” professional advice.

He says the IR35 victories for the taxpayer highlight the fact that “HMRC can be defeated if the right advice is sought.” 

In spite of being one of those victors, a reflective Mr Winfield said it had been a “trying time”. Pointing to the work and support from Accountax and PCG, he added: “I would have faced costs in excess of £50,000 due to the length of this investigation.

“In today's age of accountability, the amount of time HMRC took to argue their case means that the figure this has cost the taxpayer must be enormous, when compared with the amount they were fighting for."

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