IT contractor wins IR35 legal battle against HMRC

Court win for contractor casts further doubt on HMRC's interpretation of IR35, campaigners claim

An IT contractor working on a government project has won a legal battle against HMRC over IR35.

Software specialist Ian Wells, who was represented by Qdos Contractor, went to court after he was asked to pay extra tax on the ground of HRMC's interpretation of IR35.

Introduced by the-then Chancellor Gordon Brown nearly 20 years ago, IR35 is a law that aims to combat tax avoidance. It is directed at workers who set up limited companies to pose as "disguised employees", while being employed full-time in all but name.

The worker, who was trading under the name Jansal Software Limited, provided business analyst services through an agency to the Department of Work and Pensions (DWP) between 2012 and 2013.

With the hearing having taken place last October, Judge Jennifer Dean ruled that Ian's contract should not be subjected to IR35 tax.

She came to the decision over an "absence of sufficient degree of a right of control over Jensal's working methods".

The judge also disagreed with HMRC's mutuality of obligation (MOO) and right of substitution rules.

This case is further proof that IR35 needs simplifying, and HMRC must rethink its IR35 strategy completely

Seb Maley, CEO of Qdos Contractor, said the result casts more uncertainty on HMRC's interpretation of IR35.

"Firstly, we're delighted to have helped Mr Wells win this case. Fighting IR35 places a huge burden on a contractor, so we're thrilled to have successfully represented him, meaning he can now work without this hanging over his head," he said.

"Despite HMRC implementing and enforcing the rules, this verdict shows they can't accurately assess a contractor's IR35 status."

Maley said the big issue is that the government is not able to assess whether a contractor belongs inside or outside IR35.

"This case is further proof that IR35 needs simplifying, and HMRC must rethink its IR35 strategy completely. Clearly, this is no time to extend public sector changes to the private sector," he said.

This is not the first IR35 case that Qdos Contractor has taken on. It helped another trader overturn a First-Tier Tax Tribunal result in March.

"In addition to showing that IR35 cases can actually be won in court, this case will likely lead contractors, agencies and engagers to rightly ask questions of HMRC's ability - particularly since public sector reform means the fee payer holds IR35 liability and would be required to pay potentially colossal fines," added Maley.

"This is Mr Wells' second IR35 case, which raises yet another question, this time over HMRC's targeting of contractors. For a worker to be subject to an IR35 investigation is one thing, but twice is almost unheard of - I can't recall another situation where a contractor has been."