Contractor wins appeal over HMRC in latest IR35 case

The IR35 shambles shows no sign of abating, IPSE has today said, following the successful appeal by a contractor overturning an HMRC decision in the First Tier Tribunal.

HMRC had determined in 2016 that a contract between MDCM Ltd to provide construction services to a client during the tax years 2012/13 and 2013/14 should have been caught by IR35.

MDCM Ltd successfully appealed the determination, with the First Tier Tribunal finding that the engagement was correctly categorised as one of self-employment, and that, contrary to HMRC’s determination, MDCM Ltd’s Mr Daniels should not have been treated as an employee. 

Andrew Chamberlain, IPSE’s Deputy Director of Policy and Public Affairs, commented:

“This decision, while favourable for the contractor, just adds further proof that the IR35 rules are too complex and difficult to apply with any certainty.

“HMRC looked at the relevant factors and decided that IR35 should apply. The Tribunal looked at those same factors and decided that it shouldn’t. If HMRC, with all its expertise seemingly cannot make a correct determination, how are public authorities and individual businesses supposed to get it right?”

IPSE is also concerned that this result has implications for the Check Employment Status for Tax tool (CEST), which was criticised in oral evidence before MPs at the Culture Select Committee enquiry into BBC pay last week.

 “It would be very interesting to know whether HMRC had put this engagement through its own tool, and what the result was?”, Chamberlain asked.

“If they did, and it came back as ‘employed for taxation purposes’, then this would raise serious questions about the tool’s integrity.

“This is why IPSE has said the criticisms of the CEST tool are accurate: that it cannot be relied upon to make correct determinations which is why many organisations feel forced to take a blanket approach – pushing all off-payroll engagements into IR35 unfairly.

“If the Government extends the ill-judged IR35 changes it made to the public sector last year to the private sector, the chaos and uncertainty is only going to intensify.”