IT contractor Elaine Richardson, trading as ECR Consulting, emerged victorious last week from an IR35 case that could have cost her £50,000.
In their ruling, the tribunal judges concluded, “It is clear to us that ECR is a genuine business and therefore not a target of the IR35 legislation.”
After it decided Richardson was a disguised employee through an engagement with Vertex Data Science, HMRC handed her a £50,000 tax assessment in November 2005. As a member of the Professional Contractors Group (PCG), she was covered by tax investigation insurance and was represented by Accountax Consulting.
The tribunal applied three status tests – mutuality of obligation, substitution and control – to determine the nature of her working relationship with Vertex and concluded: “ECR operates from a dedicated business area at her home. It has a company domain and website. ECR advertises its services and is a member of the PCG. It has retained reserves and invested in development and has over the years taken on fixed price work for a variety of clients.”
In a press release on the case, the PCG argued that the tribunal’s focus on Richardson being in business on her own account could signal a shift of thinking by tax tribunals. “The classic tests of employment and IR35 status – control, substitution and mutuality of obligation – are increasingly irrelevant in today’s knowledge economy, and can no longer reflect modern flexible working patterns,” the group said.
Accountax Consulting’s Matt Boddington, who represented ECR Consulting at the tribunal, commented: “What is particularly pleasing about this judgement is that the tribunal had their commercial heads on, and understood that contracting through a single person limited company is a prudent and sensible method of providing freelance services, and not just about disguising employment.”
In a recent interview with TAXtv, Boddington commented: “the Revenue has done a very good job of convincing, or trying to convince everybody, that mutuality simply means someone does some work and gets paid for it. In every case that comes before the court, somebody has done some work and been paid for it – and if that were true no case would ever be decided on mutuality of obligation.”
With defeats in IR35 cases such as Novasoft and MBF Design Services accumulating in its files alongside the latest reverse with ECR, Boddington suggested HMRC might be losing its taste for much more litigation on this front.
“There are thousands of these cases, but somehow they never seem to make it into HMRC’s manuals. The last few IR35 cases that have been prosecuted by HMRC – there just does not seem to be the appetite that there was a few years ago. It’s almost as if HMRC is weary of the legislation themselves,” he said.