JSA High Court appeal in IR35 case

Just like buses, you wait for one then two come along at once. Another IR35 case, this time involving Future Online Ltd and JSA, is destined for the High Court on appeal.

The JSA Group of Companies, the UK's specialist accountants for contractors, has agreed to jointly fund an appeal against a decision of the Special Commissioner which could have significant implications for all freelancers in the UK.

Background

JSA client, Future Online Ltd, was hired by an agency, Elan IT, to work for three years on an EDS project to install a new computer system for the Child Support Agency. Given all the circumstances, the contract was considered to be outside IR35.

The Inland Revenue claimed, retrospectively, that Mr Roberts, the director of Future Online assigned to the project, was largely under the control of EDS and therefore was liable to a "deemed salary" under IR35 rules. However, in his particular circumstances, JSA felt this was incorrect because of the principle laid out in two landmark cases - Readymix Concrete and Montgomery-v-Underwood. These stated, in simple terms, that the two prerequisites present for a contract of employment to exist are "mutuality of obligation" and "control". If either of these prerequisites is absent, then a contract of employment cannot exist.

In Future Online's case, although it was a key contractor to the project and was involved in recruitment, it had been engaged through Elan by EDS at a time when it had to put in place a system in a much shorter period than would normally have been required. The company was thus given a wide remit and not controlled by EDS in an employer/employee sense, nor was it under anyone's direct supervision or direction.

On this basis, JSA appealed on Future Online's behalf to the Special Commissioner. However, the Special Commissioner ruled in the Revenue's favour on the grounds that if there had been a contract between EDS and Future Online, Mr Roberts would have been employed rather than in business on his own account. This is the first time that JSA has ever lost a case.

Appeal

After taking advice from Counsel, JSA were advised there were "grounds for appeal" to the High Court against the Special Commissioner's decision.

While several grounds of appeal have been identified, one of the most important ones is that the Revenue has made a contention, which was accepted by the Special Commissioner, that it is the right of control, not whether that control is exercised, that is significant.

JSA has been advised that this assertion is open to question and is bringing this appeal to the High Court to bring greater clarity to this complicated area of law.

Barry Roback, Joint Chief Executive of JSA Group, said: "All this underlines the complexity of the arguments involved and indeed the ambiguity of the legislation on which it is based. The Future Online case is significant on many levels. Potentially it has wide applications and so the decision to proceed to appeal is an important one, not just for Mr Roberts, but for the industry as a whole."