HMRC is losing successive IR35 tribunal cases because it adopts an overly simplistic view of control, the specialist tax consultancy for contracting professionals, Qdos Calculator, has declared.
HMRC’s oversimplified approach to the issue of control became especially evident in the recent First Tier Tribunal (FTT) case involving Jensal Software Ltd (JSL). Qdos Contractor’s Consultancy Manager, Kate Hardy, notes that the judge presiding over the case effectively found that HMRC’s argument about control was too rigid and simplistic to be credible. Using a more nuanced approach to control rooted in case law, the Judge ruled in favour of JSL.
Hardy writes: “Although an end client may not actually exercise any control, if it has the right to exercise control over the work at any time, then HMRC will argue that control over the work exists.”
In finding in favour of Jensal, the judge observed similarities with an earlier case involving the contracting professional First World Software Ltd (FWL). There, the tribunal found that there was insufficient control by the end client, Reuters, to justify an inside-IR35 determination by HMRC, as the contractor had been engaged for his particular expertise and for a very particular project. The issue of how the work was to be performed was left to the contractor to decide.
Whereas this clarifies the “how” question pertaining to control, the “what” question, for example, what work needs to be done, is more complex. JSL was clear that the contractor decided what work was required and when it was to be undertaken. HMRC, however, argued that because the contractor was required to attend meetings and deliver progress reports, the end client had control.
HMRC also maintained that JSL had no control over the location of the work and was obliged to work on a site dictated by the Department of Work and Pensions, the end client. However, the judge found that instructions from the DWP were, in fact, scant and that JSL was free to decide what work was needed and how it should be delivered.
Evidence supplied by DWP witnesses at the FTT hearing clarified the wide distinction between the level of control and supervision that JSL was subject to and the level its own employees are subject to.
The judge concluded: “The level of control exercised did not go beyond that which was usual for an independent contractor. In balancing all of the factors I conclude that Mr Wells was not subject to the degree of control which would be necessary to constitute a contract of employment.”
Unless HMRC adopts a more nuanced approach, it seems, it’s set to lose more and more cases.