The Inland Revenue has formally notified TreasureGuard that it has reversed its IR35 ruling on an IT contractor working at HP/Compaq. Having inspected the contractor in September 2002, and despite representations from his accountants, the Inland Revenue concluded that he was caught by IR35.
Upon approaching us at TreasureGuard for an appraisal, we advised the contractor that in our opinion he certainly was not 'caught', as the Inland Revenue had considered only a sub-set of the full evaluation criteria. When TreasureGuard presented the case again, citing the relevant case law, Inland Revenue was quick to reverse the decision.
In light of the recent IR35 ruling at the high court, which went against IT contractors, it will be a relief to many that with a strong legal defence, decisions can be reversed.
This contractor has spent 12 years contracting with various clients, including Hewlett Packard. For the last three years, since the implementation of IR35, he has paid an extra £17,000 per year in taxes due to IR35. He is however not working as an employee of HP, nor has he ever intended to. He regularly works over 50hr weeks, and his company is contracted through an agency, Jenrick CPI.
Another notable point was that the contractor did not have business insurances in place prior to the investigation, though this has now be addressed.
The Inland Revenue initially only explored the levels of supervision and control, number of hours worked, insurances in place, training, and whether or not personal service was required. They also assessed the contract in place between the personal service company and Jenrick CPI.
TreasureGuard refined the interpretation of these indicators of self-employment/employment and supported the new interpretations with the appropriate legal argument.
This case has again confirmed that robust and specialist legal representation is necessary to obtain the correct IR35 ruling from the Inland Revenue. With the latest tax year having recently closed, many more contractors will encounter difficulties with IR35.
Fortunately in this case, the contractor has come through his difficulties, and is now three year's IR35 contribution (£51,000) better off!
TreasureGuard
Jul 21, 2003
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