IR35 defeats in the courts

Two recent IR35 court cases have been won by HMRC where the Special Commissioner found that contractors, Dragonfly Consulting Ltd and MKM Computing Ltd, had become part of the team and integrated into their client companies.

Increasingly its seems that HMRC and the Commissioners are looking beyond the terms of the contract and examining the working practises of the arrangement as seen through the eyes of the end client.

In some cases, where the contract has included ‘ the right of substitution’, the end client has refuted this would have been the case in practical terms. These cases make it clear that the evidence of the end user clients can play an important role in how the court interprets the working practices of contractors.

Where the contractor and his end user client differ on the main employment status issues it is likely that the Courts will give more weight to the evidence given by the end user as they have the final say on whether they would accept a right to substitution and also the level of control exercised.

The Special Commissioner judge, commented that “when I stand back and look at the overall picture I see someone who worked fairly regular hours during each engagement, who worked on parts of a project which were allocated to him as part of the end client’s teams, who was integrated into the end client’s business, and who had a role similar to that of a professional employee.

Hence if a contractor wants to be more certain of their IR35 status they will need to talk to their end client to ascertain the end client’s thoughts on the subject.