5/18/2018 8:10:00 AM by SS Umbrella Ltd
The HMRC IR35 tax reform, introduced last year, had attracted a lot of controversies. The tax reform has created financial difficulties for many independent contractors. In the latest case relating to the tax reform titled Jensal Software Ltd v Revenue & Customs, the judge had ruled in the favour of an IT Contractor named Ian Wells who had appealed against a tax bill that exceeded £26,000.
Mr. Wells provided IT services to the Department for Work and Pensions (DWP) between May 2012 and April 2013 through his limited company, Jensal Software Ltd. HMRC had argued that since then there was a direct contract between DWP and Wells, it constituted a contract of service under IR35.
But the presiding Judge Jennifer Dean had ruled that the mutuality of obligation (MOO) does not demonstrate a contract of interest. The level of control does not extend beyond the irreducible minimum. So, there is no contractual relationship between the two parties. The elements of contract demonstrated that Mr. Wells had worked as an independent contractor.
Main Points from the Jensal Software Ltd v Revenue & Customs Case
A lot of interesting points emerge from the latest court cases involving IR35. The conclusive ruling in favour of the IT contractor shows that MOO is not enough to show a contract of service under IR35, which has weakened HMRC argument regarding MOO and the decision to omit it from the CEST tool.
In this case, the HMRC had tried to use the strategy of promoting its narrow interpretation of the MOO, but it flopped. According to Judge Dean, no restrictions were imposed on Mr. Wells in the contract. The lack of control suggested that there was no employment contract between DWP and the HMRC.
Judge Dean had concluded that the HMRC cannot use the argument of MOO in proving that there was a contract of employment. Although Wells had agreed to provide progress reports, the level of control was not sufficient to deem it as an employment contract. Mr. Wells had provided services to DWP as an independent contractor and therefore should have been charged a tax.
The outcome of the court case shows that the HMRC can no longer continue to use MOO as an argument for a contract of service between a contractor and an institution. The court outcome will likely influence similar cases that are expected against the HMRC.