6/5/2018 9:16:00 AM by SS Umbrella Ltd
Yet another court victory of an independent contractor against HM Revenue & Customs (HMRC)’s IR35 has come to the limelight, although the case was heard about a year and a half ago at the First Tier Tribunal (FTT). The plaintiff in the case was Mr. Armitage’s personal service company — Armitage Technical Design Services Ltd (ATDSL).
To avoid lengthening the case, Armitage had offered to settle the tax amount due on the condition that no penalty was imposed. However, HMRC had refused and insisted that the penalty should be paid due to negligent action of the taxpayer for not having discussed the IR35 with the accountant before submitting the P35.
Background of the Case
Armitage has worked in the nuclear industry in the capacity of an electrical control and instrumentation designer for decades. He offered his services to Diamond Light Source Ltd. through ATDSL and two other employment agencies.
According to HMRC, the work performed by Armitage between the period 2009 and 2014 was taxable under IR35 (https://www.ssumbrella.co.uk/what-is-ir35/). Armitage worked on different projects for DLS and other customers.
The case was evaluated by the presiding judge based on various points regarding employment and self-employment including the following.
Control over Work
Personal Responsibility
Independent Work
An Employee of the Organization
Mutuality of Obligation (MOO)
The judge noted that Armitage had worked from Warrington and came to the DLS headquarters located in Didcot once per project. He had control over deadlines and did not supervise the staff. Based on these facts, the judge had ruled that DLS did not exercise control over Armitage similar to other employees, which meant that he worked as a self-employed individual.
In addition, the judge had found that DLS could easily have employed another qualified individual in place of Armitage, although it did not practice this right in reality. This meant that Armitage was not personally responsible for completing tasks.
Another point in favour of Armitage was that he was not part of DLS’s employee time management system similar to regular employees. Armitage worked for multiple clients and used his own software for time and project management.
Moreover, it was found that Armitage had not received benefits similar to DLS employees. He was not offered holiday or sick pay, or a personal locker as given other employees. This was because he was not considered employee of an organization.
Lastly, the judge had stated that the just because Armitage had offered services to DLS does not mean that mutuality of obligation (MOO) was applicable.
Based on the above findings, the judge had decided that Armitage’s work does not fall under IR35. He ordered that all tax and penalties should be cancelled. This shows the weak argument of HMRC in blindly extending IR35 reform to all independent contractors.
HMRC already lost an IR35 case against a contractor (Jensal Software Ltd) recently.