One or two features of an employment relationship are not enough to put a contractor inside IR35, the First Tier Tax Tribunal has ruled. HMRC’s loss comes in a case against MDCM Limited, a construction services management services company owned by Mark Daniels, concerning a contract in 2012/13 and 2013/14.
HMRC had ruled in their assessment that the fact that Mr Daniels could not provide a substitute (even though his contract with the agency said he could), and the degree of control exercised by the client company meant that he should be considered as an employee. The tribunal disagreed however, pointing out that the overall effect of the contract terms has to be taken into account. They found points for and against both HMRC’s and Mr Daniels’ positions but decided that overall MDCM was an independent contractor.
The points they considered were:
- a) Mr Daniels is not controlled any more than any other contractor and could refuse to work on another site
- b) there was a contract for personal services as Mr Daniels could not provide a substitute to STL (even if Solutions contract said he could).
- c) Mr Daniels was paid £310 a day and had to pay his own travel, hotel and other expenses.
- d) Mr Daniels took no other financial risks
- e) There was no requirement on either party to give notice to terminate or entitlement to severance pay or pay in lieu.
- f) STL provided safety equipment to Mr Daniels
- g) Mr Daniels was not integrated into the STL business
Responding to the ruling, IPSE’s Andy Chamberlain said that it calls into question the Revenues ability to make sound decisions on IR35: “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,” he said, adding: “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?”