Contractor UK have today reiterated the statement from HMRC that contractors should not rely upon non-IR35 case law precedent to decide IR35 status.
HM Revenue & Customs announced in March a number of amendments to its Employment Status Manual. This included case law updates in respect of the important High Court IR35 cases of Dragonfly Consultancy and Larkstar Data.
The Employment Status Manual gives contractors a clear view of the issues that HMRC will rely upon in the event of an IR35 investigation. HMRC have won 4 out of the 4 IR35 cases which went to the High Court.
HMRC builds on all 3 status tests (Substitution, Mutuality of obligation and Control) to decide whether a contractor falls within IR35 and is actually disguised as an employee or if they are working outside of the IR35 legislation.
HMRC added; “Sometimes it will be necessary to take up issues where there is a relatively small amount of tax in the case itself, because of the wider implications of the point at issue.”
They want to highlight that although there may not be much tax at stake, as was in the Larkstar case, they want to protect the deterrent effect of the IR35 legislation. However from April, 2009 HMRC have had a stringent penalty regime so it is likely that the amounts at stake in future cases will increase substantially.
Kate Cottrell, co-founder of Bauer & Cottrell, an employment status and IR35 specialist speaking on Contractor UK said; “When deciding IR35 status, full account of the actual working practices should be taken and proper attention given to the case law that is wholly relevant to IR35”.
