HMRC has been defeated in a new ruling affecting contracted workers assessed under the IR35 rules. It is an unusual decision given the nature of the engagement, and has done nothing to help clarify the already complex situation. The decision has also raised concerns over the use of HMRC’s online employment status tool.
The First Tier Tribunal (FTT) ruled in favour of Mark Daniels who provided construction management services via a personal service company. HMRC contended that a contract covering 2012/13 and 2013/14 should have been caught by IR35. However, the FTT found that the engagement was correctly categorised as self-employment.
The FTT looked at a range of factors to decide if Daniels was self-employed or not. The most important factors that led to the FTT’s decision were:
• Daniels had no entitlement to a notice period, sick pay, holiday pay, or any employment benefits. However, the vast majority of contractors don’t normally enjoy these benefits.
• Daniels was not being controlled or managed by the client beyond what was typical of a large construction project where there is a clear structure.
• Daniels was paid a daily rate, rather than a weekly or monthly rate.
The FTT declared Daniels self-employed despite the fact that he was not allowed to provide a substitute in his absence (and was not in position to provide a substitute in any case). He also took no financial risk, and the client provided safety equipment. These three factors would normally be strong indicators of employment.
The HMRC’s online employment status tool responds to the facts of Daniels’ case with, “We’re unable to determine the tax status of this engagement”.
However, HMRC will stand by any non-IR35 outcome given by the status tool, provided the information submitted is accurate.