Public Sector contractor wins IR35 case

18th June 2018

HMRC have lost a second IR35 case this year, and their second case against the same contractor, putting into doubt their own understanding of the IR35 rules. Ian Wells, director of personal service company Jensal Software Limited provided his services to the Department of Work and Pensions via a recruitment agency during 2012 and 2013.

HMRC would have been keen to win a case against a public sector contractor to bolster the IR35 reforms that began on 1 April 2017. However, the tribunal judge found several factors that meant the contract was outside IR35.

Mr Wells was not subject to the level of control that would constitute a contract of employment.

A clause in the contract allowed a substitute to be provided, and although not utilised, meant the balance was shifted away from employment. In fact, Mr Wells admitted he had requested the addition of such a clause which HMRC insisted proved the clause was a sham. Interestingly, the judge reasoned that inserting a clause did not negate the right to use it and rely on it.

HMRC generally view all public sector contracts to have Mutuality of Obligation – an obligation on both parties to provide and accept work. Judge Jennifer Dean decided there was not enough of an obligation to demonstrate a contract of employment.

 With HMRC currently consulting on private sector contractors, their decision to pursue this case casts doubt over their ability to recognise whether a contractor belongs inside or outside IR35.

 

 

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