‘Brave’ contractor MDCM Ltd wins IR35 appeal

A brave limited company contractor has won his IR35 appeal, overcoming three status factors that went against him and giving HMRC a red-face in the process.

Mark Daniels, who fought HMRC alone in an era of it using barristers, even got helped to his win by HMRC, despite Financial Risk, Substitution and MOO going in its favour.

But on Control, HMRC was forced to withdraw its submission against Daniels, director of MDCM Ltd, during the hearing and once tax officials had heard oral evidence from a witness.

In particular, a representative of MDCM’s client Structure Tone Ltd told the tribunal that Daniels was “asked” if he would work at a certain site. It means STL had “no power” to direct him.

'Most important factor'

The blow seems all the more embarrassing for HMRC because the judgment also records that tax officials insisted that “control by STL [over Daniels was] the most important factor.”

Although HMRC argued on about Control (shift-worker Daniels had a PM, but the tribunal found the PM only ever outlined “what needed to be done”), the tax department made another miscalculation.

In putting its oft-made claim that contractors use their PSCs for staff benefits, and so benefits are moot for IR35 status, HMRC was likely aghast to hear the judge imply the contrary.

'Necessarily circular'

“We do not think that HMRC can dispense with this point so easily by saying it was a matter for MDCM”, Judge Ian Hyde says in the ruling, handed down in Birmingham in November 2017 but published yesterday.

“It is necessarily circular for HMRC to argue that he would have had such rights were he an employee,” but Daniels would not have them, the judge ruled, in his notional contract with STL.

So because a direct contract between Daniels and STL (without Daniels’ recruiter Solutions Recruitment), would not grant him any employee-type benefits, judge Hyde deemed this indicative of self-employment.

On the more classic IR35 status factors, HMRC probably thought an upholding of the IR35 tax bill which it sent Daniels (for his work at STL between April 2012 and 2014), was on the cards.

'An employment relationship'

In fact, Daniels’ unused substitution clause was not acceptable to STL; there was Mutuality of Obligation between STL and Daniels, and the latter incurred no Financial Risk.

“[We] do agree that the requirement for personal services and lack of financial risk point to an employment relationship,” the judgement states, adding:

“There was a contract for personal services as Mr Daniels could not provide a substitute to STL (even if Solutions contract said he could).”

Yet parts of Daniels’ own defence helped shore up his 'outside IR35' claim; he had no notice period, no entitlement to severance pay and no entitlement to reimbursed expenses.


Aspects of his arrangement and working practices with STL that he didn’t put forward as solidifying his self-employed status were, in addition, picked out by judge Hyde.

“We find that the nature of the payment arrangements, a flat rate per day…[is] inconsistent with employment,” the judge said.

“STL provided [only] safety equipment to Mr Daniels [and] Mr Daniels was not integrated into the STL business…. further, Mr Daniels was not treated as an employee.”

'Useful, influential, -- telling?'

IR35 advisory Bauer & Cottrell says that despite being specific to the construction industry, the case contains some “interesting comments [from the tribunal in its judgment] that should prove useful for anyone arguing their IR35 status.”

“[As] we keep hearing of cases where HMRC has appointed a barrister to put their case, which is expensive and unfair to the taxpayer, huge congratulations must go to Mr Daniels for representing himself,” said the advisory’s co-founder Kate Cottrell.

She also told ContractorUK: “This is a First-Tier-Tribunal case and does not create case law precedent. However in light of the recent BBC case and the current furore over the proposed roll-out of the new IR35 rules to the private sector, this case will have influence.

“We are awaiting the result of another IR35 case at the tribunal and so I wonder if there are more, and if this is why the promised [private sector off-payroll] consultation document is so delayed.”

Profile picture for user Simon Moore

Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
Printer Friendly, PDF & Email

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required