Aer Lingus: IR35 ruling overturned.

TreasureGuard explains: In what is being referred to as the ‘Aer Lingus’ case, the Inland Revenue’s application of IR35 has suffered a large blow.

TreasureGuard, acting on behalf of a contractor, who spent several years contracting at Aer Lingus, has overturned the ruling of the Inland Revenue that the contracts were caught by the IR35 rules. This comes as an early Christmas present to the IT consultant who would have had to pay over about one fifth of the income from the contracts in IR35 taxes. Not a small sum!

The contractor delivered IT services through his limited company at Aer Lingus from September 1999 to October 2002 on high level IT projects. Following the September 11 atrocities, and financial constraints being applied to the airline industry, the contract was terminated earlier than planned, and the contractor spent several months finding a permanent job. The Inland Revenue then inspected the contractor’s company and after a visit to the contractor's existing accountant ruled that IR35 applied. It was at this stage that the contractor contacted TreasureGuard Ltd, who took up the appeal.

After five months of arguing the position and pointing out the relevant case law to the Inland Revenue, and with threats to take them to court, the Inland Revenue have backed down and ‘concluded’ that the contracts are not subject to IR35! The major arguments that determined the status revolved around the reality of the right of substitution, levels of control, the contract and the working relationship between the two parties.

The contractor's existing accountant had put up a strong argument against the Inland Revenue, pointing out the reality that the contractor was not part and parcel of Aer Lingus, that there was significant IT hardware at home, and that the company had advertised on the Internet for work.

However the Inland Revenue ruled that, having reviewed the whole relationship, the contracts were caught by IR35. At this point, TreasureGuard Ltd entered and pointed out the relevant case law, and several important terms in the contract, which signified the decision was not correct. Aer Lingus were approached for verification of certain contract details and upon their confirmation of the TreasureGuard position, withdrew their ruling.

Of particular interest, was the Inland Revenue’s selective application of the, 'reality versus what is stated in the contract', argument. Where it suited their argument, the Inland Revenue ignored what was written in the contract and argued the reality of the issue, whilst at other times if it suited them, they argued that what was written in the contract should be referred to and not the reality of the issue.

This happened with the substitution and sick notice clauses. Where it was in the Inland Revenue’s favour to argue that the right of substitution did not exist, they ignored the fact that it was clearly written in the contract.

When they wanted to prove a control issue that the contractor had to ring in for sick leave, they pointed to the contract term requiring notification, and ignored the reality that had developed where the contractor did not in fact ring in.