HMRC has had its request to the IR35 Forum for an example of a long, drawn out and poorly managed IR35 case granted. In the JLJ Services IR35 case, contractor John Spencer endured a seven-year investigation that still resulted in justice failing to be done. For example:
- Key evidence was ignored and opinion was treated as fact
- There were huge inconsistencies in the application of the law
- The tribunal Judge Howard Nolan showed a breathtaking lack of knowledge about contracting – he even claimed that contractors can only work through agents because their skills are unsuitable for full-time employment and they can’t find work otherwise.
This is not only a classic example of why HMRC needs a formal process for the application of IR35, but highlights quite how badly and urgently changes are needed if such miscarriages of justice are not to be repeated.
Judge Nolan took great pains to dismiss the written contracts and the intentions of the parties, and to build a notional contract based on the facts, as IR35 should be applied. But in this instance, the paperwork was a key factor, even if the working conditions didn’t really change.
If Spencer had kept his contract paperwork up-to-date to correctly reflect the project nature of his work as he went along, he probably would have been fine. Astoundingly, the contracts that were ignored when applied to Spencer’s defence, were then used as part of the evidence to place him inside IR35!
On this basis, HMRC wants to have its cake and eat it; a classic case of telling the contractor, “Heads I win; tails you lose.” Contractual paperwork, such as the mirrored substitution clause, was ignored when it suited them. But it was OK to use the paperwork when it was needed to prove HMRC’s claims. There is a huge and unsavoury inconsistency here.
Spencer was kind enough to pass on the lessons from his experiences. In particular, he recommends that contractors ensure their contracts genuinely mirror working practices, and that their client understands the nature of the relationship.
We would join Spencer in urging all contractors to adopt IR35 best practice before the IR35 Forum gets its act together. We suggest contractors have their contracts reviewed now to ensure that they are doing everything possible to avoid offering HMRC any opportunity to hang an IR35 case on their contract.
To all on IR35 Forum, we would say: here’s the evidence HMRC has been asking for. Now use it to develop an IR35 process that’s fair and just for all contractors, and also ensures the Treasury gets what it is legally entitled to – and no more.
Published: Thursday, December 15, 2011
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