Taxman dealt 'bloody nose' in IR35 fight

HM Revenue & Customs was dealt a “bloody nose” when its seven-year bid to make IR35 stick to a freelance engineer was thrown out by a significant ruling in favour of the taxpayer.

Sitting in Bristol, a tribunal cleared the contractor Mark Fitzpatrick of using his own limited company solely to avoid tax, as HMRC alleged, while working for planemaker Airbus.

Experts at the tribunal said the taxpayer’s victory owed to a lack of ‘mutuality of obligation’ between the planemaker and Mr Fitzpatrick’s company, MBF Design Services Ltd.

In fact, MBF’s contract could have been cancelled by Airbus without notice and, in the event of systems failure or downtime, contractors went home unpaid while staff had to stay on-site.

The contracting body PCG said: “This is a significant victory for the freelance community with particular emphasis on Mutuality of Obligation- a forgotten core principle of being in business."

Accountax Consulting agreed, saying the case “highlights that if parties arrange their affairs correctly and if these arrangements are an accurate reflection of reality, then the IR35 legislation simply will not bite.”

As a result, the firm’s director Matt Boddington, who represented Mr Fitzpatrick at the tribunal, said the ruling appeared to represent “a significant bloody nose for HMRC”.

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