HMRC appears to be increasing challenges it makes under the IR35 rules, but it doesn’t always win the argument at the tax tribunal. The latest IR35 case has lessons for all contractors.
Mr Armitage is a very skilled electrical control and instrumentation designer, who has worked in the nuclear industry for decades. He contracted through his own personal service company (Armitage Technical Designs Ltd), with two other intermediary employment agencies in the chain, to provide his services to the end client: Diamond Light Source (DLS).
HMRC decided that work performed over two periods for DLS (25 October 2010 to 11 March 2011, and 23 July 2012 to 25 January 2013) fell within IR35.
The judge concluded that the following aspects of those contracts pointed towards self employment rather than employment:
- Substitution: DLS would accept a reasonably qualified substitute in the place of Armitage.
- Control: Armitage chose to work remotely away from the main site of DLS, he worked to his own deadlines and wasn’t directly supervised by DLS staff. He only attended the main DLS site at the start of each project. He was thus not subject to the same level of control as the DLS employees.
- In business on his own account: Although Armitage was paid an hourly rate, he worked much longer hours than the DLS employees were contracted to work each week. Armitage provided his own software and some of the computer equipment required for the project. He worked on other projects for other clients during 2012 concurrently with the project he was completing for DLS.
- Part and parcel of the organisation: Armitage received none of the benefits provided to the DLS employees, and didn’t even have a locker allocated to him. He did not attend employee functions or training events, and was not included on the team-sheets. He was not part of the DLS organisation
On the crucial point of mutuality of obligation (MOO) the judge said: “The mere offer and acceptance of a piece of work does not amount to mutuality of obligations in the context of employment status”, so in this case the MOO factor was considered neutral.
Overall the judge concluded that the contracts Armitage performed for DLS did not fall under IR35.
This case has not been published on the Tribunals website as it was released as a summary judgment to the parties to the case. As the taxpayer won, and HMRC did not wish to appeal, the judge was not asked to produce a full written report of his findings and reasons, which would normally be published by the courts service.
Contrast this with the reported case of Christa Ackroyd Media Limited v HMRC which HMRC won.
This case and a further one reported and analysed by RPC, MDCM Limited, provide a useful reminder of the factors to be considered whether a person is considered an employee for the purposes of IR35.