The Association of Independent Professionals and the Self Employed (IPSE) has helped a contracting professional who was forced onto agency payroll after an IR35 assessment to win a “David and Goliath” style battle with HMRC.

Susan Winchester, a marketing and business development consultant, had been engaged by HMRC on a contracting basis in September 2016 to provide marketing services. However, after reformed IR35 rules were imposed on the public sector in April 2017, HMRC fed her engagement details through its controversial Check Employment Status for Tax (CEST) tool and determined that she was inside IR35.

As a result, HMRC effectively strong-armed Ms Winchester onto an agency payroll, an action that could not be challenged. Following the move, Ms Winchester argued that as she had been moved from independent contracting professional to agency worker, she was entitled under Agency Workers Regulations to holiday pay and identical holiday entitlements to HMRC employees.

Earlier this year, she launched a claim for £4,200 in unpaid holiday pay at the Central London Employment Tribunal against HMRC, the agency (Kinect Recruitment Ltd) and three other parties involved in the contractual chain.

On the morning the hearing was scheduled to begin, all the parties agreed to an out of court settlement which resulted in a full payout of the money Ms Winchester had claimed entitlement to.

IPSE CEO Chris Bryce said that the case sent a clear message to HMRC that if it thinks it can force contractors onto agency payroll, with no chance to appeal, and then wash its hands of the consequences, it will have to think again.

The outcome tells HMRC and others in the contractual agreement that if they are intent on treating contractors like workers, they will have to give them full worker entitlements.

It was simply wrong to decide that a contractor is inside IR35, shove them onto an agency payroll and then expect someone else in the contractual chain to pay for obligations like holiday pay, he said.

Bryce went on to say that the case provided even more proof that the IR35 changes that were imposed on the public sector last year have resulted in “chaos and confusion”. Extraordinarily, one of the culprits in this latest fiasco was HMRC itself, he noted, adding: “If HMRC don’t understand their obligations under a system they’ve created, how can they expect businesses to get it right?

“Therefore, with Brexit hanging over the country, IPSE’s response to the Government’s consultation on extending the changes to the private sector is clear: abandon this disastrous proposal. We appeal to the Government to harness the talent provided by the freelance community and stop hounding them!”

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