A recent employment tribunal, with absolutely no direct relevance to IR35, has provided a very useful reminder that whenever a contractor is working outside IR35, it is essential that evidence of this is collected throughout the contract.
It shows that contractors should always adopt IR35 best practice for each contract by creating and maintaining an IR35 dossier. This is likely to become vital evidence should HMRC open an IR35 review of their contract.
No matter how organised your client project manager might look, nobody is perfect. So by maintaining your own records of meeting outcomes, correspondence, projects and so on, you may be able to convince a tax tribunal judge that your evidence trumps the client’s. And this might keep you outside of IR35.
The advantage of keeping good records was highlighted in a recent Employment Tribunal, Ranu v Diamond Solicitors LLP. A locum legal contractor, Mrs M Ranu, tried to claim she was an employee, and therefore unfairly dismissed when her client terminated the contract. As it happens, she lost the case.
When we first spotted the case during ContractorCalculator’s regular review of all potentially relevant case law, we asked IR35 expert Andy Vessey, of Qdos Consulting, whether it had any IR35 significance,
He replied: “The claimant was found to be a ‘worker’ which, of course, is not recognised in tax status cases, you are either an employee or self-employed, so it doesn't set any real precedents.”
So, at first glance, a forgettable, everyday case with no groundbreaking news about IR35 or employment status. However, what Vessey said next is well worth every contractor remembering:
“Interestingly, though, the judge preferred the evidence of Ms Power, the respondent, in respect of the meeting between the two parties as she seemed to be surer of dates and times.
“This is therefore a timely reminder to contractors to regularly maintain an IR35 dossier, which could prove critical in enquiries where the end client is uncertain about events, dates and times.”
Most IR35-savvy contractors are already aware of the concept of keeping IR35 files or dossiers for each contract. Memories fade, client records get lost, project managers move on. But contractors can stop an IR35 review as soon as it begins by presenting the right evidence to the taxman.
No doubt in some quarters, probably from those contractors who have never been investigated, there is a healthy dose of cynicism about the value of such activities.
Let’s hope that this tribunal and Vessey’s commentary provides direct evidence that keeping good records wins favour with tribunal judges.