Contractor Jensal Software Ltd beats IR35, again

A sound knowledge of IR35 has helped a public sector PSC contractor win his appeal against HMRC over a £27,000 tax bill under the Intermediaries legislation.

Both in front of the FTT and in his work for the Department for Work & Pensions, Ian Wells, boss of Jensal Software Ltd, used the fact that he is “well-versed” in IR35 to his advantage.  

HMRC tried to use his self-described ability against him, alleging he only ‘sought the right to substitution’ because the DWP contractor knew it to be an indicator of IR35 compliance.

But while the right was fettered, Wells “could have relied” on it if need be, said judge Jennifer Dean, ruling in the first public sector case since IR35 reform was introduced.

‘Vindicated, twice’

Yet as the case was tried under the old assurance process, more remarkable is the likely root of the contractor’s IR35 know-how -- he had faced an IR35 investigation already, in 2003.

"To our knowledge, it's the first time that a PSC has twice been hit by HMRC with IR35, and twice been vindicated as bieng outside’ it,” says Qdos, which defended Wells both times.

But the bigger “irony” according to the status advisory is that Wells’ latest case saw a government department – HMRC-- go up against a government department – the DWP.

“He was working on a project for Work & Pensions, which just goes to highlight the obvious trouble that government has with reading its own rules accurately,” said Qdos’ Andy Vessey.

‘Limited, minimal’

The adviser specifying ‘for’ the pensions department (rather than ‘at’) is intentional, as business analyst Wells was found to be able to “work at any site he deemed necessary.”

This flexibility Wells had (and lack of control by the DWP), was characteristic of his working reality, as any instructions he received were “limited” and check-ups on his work “minimal.”

“Wells utilised his skills to decide what was needed, how those needs could be met and the timescales in which the task could be completed,” said judge Dean, rejecting HMRC’s arguments alleging Control.

Those arguments, like the one which the tax office submitted to the tribunal about the recruitment process of Mr Wells (it appeared employee-geared), hinged on the paperwork.

Specifically, a framework DWP had in place with recruiter Capita Resourcing was cited by HMRC twice, as it said: “Interim Personnel assigned to the Authority shall be under the supervision and control of the Authority”.

‘Direction, Supervision, Control’

Further supporting HMRC’s case, the framework also said: “The Authority shall be responsible for the operational direction, supervision and control of Interim Personnel assigned to the Authority under any Services Order.”

“The statement is generic”, judge Dean observed.

“The Framework does not assist in determining the terms of the hypothetical contract in this case; it was clear from the evidence that no such operational direction or supervision existed and the ultimate responsibility held by the DWP was no more than would exist in the case of an independent contractor.”

Andy Vessey, head of tax at Qdos said last night: “This case was primarily won on the absence of a sufficient degree of a right of control over Jensal [Software Ltd]’s working methods.

“HMRC are defining the right of control very narrowly and rigidly, so it was refreshing that the judge agreed that, ‘Mr Wells was not subject to the degree of control which would be necessary to constitute a contract of employment.’”

‘Degree of Control’

In her own words, the judge confirmed: “I am satisfied that this [evidence from one of two DWP employees] did not amount to ‘supervision’ as such, but rather to ensure that Mr Wells understood the nature of the DWP’s request and that all workers understood how the task was to be carried out.”

Evidence from both the employees, Andrew Lemon and Gary McDonald, was commended last night by Mr Vessey, a former tax inspector. But probably much to his ex-employer’s chagrin.

“The two DWP employees…. appeared as witnesses for HMRC but actually turned out to be excellent witnesses for us due to their honesty and integrity,” Mr Vessey said.

‘Clear and cogent’

Judge Dean made a similar recognition in her ruling but, perhaps crucially, also said “on minor matters where a difference in recollection arose, I preferred the evidence of Mr Wells”.

She added that she found the submissions from the 20-year contractor “clear and cogent” -- helpful given that Mr McDonald conceded that his recollection of events with Mr Wells was “limited”.

“I would pay tribute to Ian Wells who was a very competent witness and whom I had no qualms about putting…on the witness stand,” said Mr Vessey.

“However this is Mr Wells’ second IR35 case, which does raise important questions over HMRC’s targeting of contractors.

“I can't recall another situation where a contractor has been investigated twice. From this, it could be argued that HMRC has an agenda, and is wrongly going after certain individuals.”

‘HMRC success, intent’

Yet HMRC was successful on Mutuality Of Obligation. In fact, a degree of MOO was ruled to be present in Mr Wells’ engagement with the DWP, which ran from May 2012 to April 2013.

But it did not go beyond the ‘irreducible minimum’ and so “the mutuality of obligation does not of itself demonstrate a contract of services,” judge Dean decided.

“The case is an example of how IR35 cases can in fact be won, and an enquiry does not necessarily result in a HMRC victory,” says Qdos CEO Seb Maley, also a former tax officer.

“Worryingly though, HMRC seems intent on pursuing cases which -- on closer inspection -- clearly sit outside IR35. That the body tasked with implementing and enforcing IR35 changes can’t seem to get things right will not give contractors much confidence.”

Printer Friendly, PDF & Email

Sign up to our Weekly Newsletter

Keep up to date with everything in the world of contracting.

 

Contractor's Question

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

Ask a question