Second contractor loses IR35 appeal before Special Commissioner
In this issue:
- Special Commissioners case and appeal possibility
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Special Commissioners case and appeal possibility
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A second contractor has had their appeal against their status under IR35 turned down by Special Commissioner, Nuala Brice. Unlike the earlier 'Battersby' case, which was reported last year, this contractor was represented by Counsel in front of the Special Commissioner.
(see here).
The case, referred to as 'Frank Simpson and FS Consulting Limited' in the anonymised judgement, involved a PCG member and has been discussed on the PCG forums. Although PCG was not involved with the member's case when it went to the Special Commissioner, PCG has arranged for leading tax expert Anne Redston to review the judgement and the case materials.
She noted that the member's defence at the Commissioners appears to have centred largely on the issue of whether the agency rules applied to the worker, on the basis that if they did *not*, then the worker could not be caught under IR35. This was a novel argument but the Commissioner concluded that both sets of rules were in force and the fact that he was not caught by the agency rules did not mean he was outside IR35.
Unfortunately, however, the contractor's case (as set out in the 'skeleton arguments' which summarise the main points to be made at the Commissioners) made little mention of the usual status tests and concentrated on the agency argument. Hence factors that the Revenue raised and which case law suggests are not necessarily indicators of employment - such as working at the client's site, using the client's equipment, being paid by the hour or having little risk apart from invoicing - appear to have been largely unanswered in front of the Commissioner.
With Anne Redston's help PCG is assessing whether the Group should assist the member in appealing the Commissioner's decision. Anne Redston has noted that, on the key issue of mutuality of obligation, the position is not strong. It appears from the background evidence that even if the contracted work had been completed ahead of schedule the client would have been obliged to provide additional work and the worker would have been required to carry it out until the contract ended, a key aspect of mutuality.
In addition the substitution clause was based upon the contractor having to use a substitute who had previously worked for the client. In Anne Redston's opinion: 'It is arguable that the substitution clause should have been given greater weight. But there is no precedent case where exactly this sort of substitution has been considered, and a higher court will not overturn a decision which, on the facts, is within 'the band of possible reasonable decisions'. If appealed, the High Court may therefore not consider the Commissioner's approach to the substitution clause to be an error of law.'
Hence, while it appears that there are some issues that were not fully explored, it is less certain that there are good grounds for appealing the case to a higher Court. However, with Anne Redston's help PCG has agreed to consult with a leading employment Counsel to see whether there are good grounds for appealing.
The PCG Board are keen to assist the member if there seem to be good grounds for an appeal on issues that were pertinent to most PCG members. However, because the case was heard at the Special Commissioners, it does not as yet set any precedents and if appealed the PCG would need to be certain that the appeal would be successful as a judgement in a higher court would set a precedent. PCG was aware that some elements of this case are fairly unique to the member and an appeal may not go far in clarifying issues of wider relevance to the contractor community, which is the primary aim of the case law strategy. Nevertheless PCG will await Counsel's opinion before making a decision.
Unfortunately, as the case stemmed from the voluntary submission of contracts to the Revenue's contract review service, and not from a Revenue investigation or assessment, then the case is not covered by the PCG's tax investigation insurance. If the member had decided to treat himself as outside IR35 based upon his own well documented assessment of the relevant factors and the Revenue challenge had come after a PAYE audit then the case would have been eligible for the PCG insurance.
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The Editor