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PayStream opinion

Paystream News

Julian Ball

Wednesday 25th Jan, 2012

The recent case of JLJ Services v HMRC 25 October 2011 [click here for full case] confirms that whilst there are standard tests (e.g personal service, control, mutuality of obligation, business risk) that are used to determine IR35 status each tribunal will have its own view on how much weight to afford to each test. In this article we look briefly at the tests, how they were applied by the Tribunal Judge and whether the contractor could have taken any practical steps to improve his position.

John Spencer was an experienced and skilled IT contractor who had worked through his limited company for a number of years on a number of projects which the Tribunal felt were outside IR35 because:

  • they were on a project basis with project descriptions in the contract (and therefore there was no obligation or expectation that continuous work would be provided)
  • the work was not guaranteed and there was a risk of Mr Spencer having no work and no income. Indeed there was evidence of periods where no work was available to him (thus he took financial risk)
  • the work was of a specialist nature needing his expertise. The companies for whom he worked had no internal resource with his skills (thus he was not under their control).

However the Tribunal felt that the position, and his IR35 status, changed over time. He was offered full time employment with the client and even though he turned it down there was assumption that he would be around long term. The agency stopped issuing new contracts with a project description. He was simply given contract extensions for a period of time with no project description. The Tribunal saw these factors as indicative of an employer/employer type relationship developing.

Mr Spencer therefore found himself with a tax bill for the years after his status changed. So is there anything he could have done differently? He could certainly have insisted that each contract or extension that he was given set out the work scope for the period of that contract. The Tribunal discounted the substitution clause in the contract partly because it was badly drafted and partly because they did not feel it could realistically be enforced. Clearly better drafting would have helped and if a substitute had been used at all it would be hard for HMRC to succeed. It is not clear whether he took out business insurance to cover the risk of a claim against him but if he did this would have been evidence that he was taking business risk.

At PayStream we offer a full IR35 review to our PSC customers free of charge. Our experienced compliance team is also happy to help with any individual queries.

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