IT consultancy, Dragonfly Consultancy Ltd, has been defeated in its IR35 appeal at the High Court. The appeal had been funded by the Professional Contractors Group (PCG).
It was back in 2008 that Wiltshire-based Dragonfly Consultancy ltd lost its IR35 case before the Special Commissioners. This left Jon Bessell, co-owner of the company with a tax and NIC bill of £99,000. This decision has now been supported by the High Court.
In January last year, Special Commissioner Charles Hellier had stated that as Mr Bessell was an integral part of his client AA’s business and should therefore be treated as an employee. Mr Bessell had provided his services to AA for three years through agency, DPP International Ltd. He would have had limited rights of substitution but AA had declared that they would have expected to vet or choose any replacement prior to them reporting for work.
Mr Andrew Stafford QC appealed the Special Commissioner’s initial ruling on four grounds:
1)    The right of substitution in notional contracts was wrongly concluded as being inconsistent with employment. Instead his conclusion should have stated that the notional contracts would have been prevented from being full contracts of service due to the provisions which they contained.
2)     That the commissioner incorrectly asserted that the rights of control the AA had over Mr Bessell’s work could have allowed the creation of a contract of service
3)    The incorrect conclusion that the intentions of AA and Mr Bessell were irrelevant.
4)    The service commissioner did not take into account that while a person may be self-employed this does not mean that he is in business for himself. There is a category in-between.
At the High Court, Mr Justice Henderson answered each point in turn.
1)    He considered it unreasonable that the AA would have agreed to unqualified rights of substitution and that the existing rights of substitution were on a par with a relationship of employment.
2)    He concluded that Mr Bessell’s work was subject to control and supervision. He stated that the level of control exercised by the AA was for the Special Commissioner to analyse and he had found the balance tipped towards employment.
3)    He concluded that there had been no error in law on the part of the Special Commissioner.
4)    Mr Stafford, QC had entered the special definition of ‘worker’ pertaining to an intermediate category of people who are neither employed nor self-employed and that the IR35 legislation only applies to [notional] employees. He again reiterated that he ruled with the Special Commissioner that no other categories of worker needed to be considered as Mr Bessell’s position fell “on the employment side of the line”.
On this note the appeal was dismissed, leaving Mr Bessell to pay the £99,000 tax and NIC bill.

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