IR35 Factors, IR35 Compliance, are you caught?

A leading contractor accountancy firm has welcomed the recent 'fair and equitable' decision by the Employment Appeal Tribunal in the Alstom Transport vs. Tilson case, in which an independent contractor was deemed not to be an 'employee' after all.

The November 2009 ruling overturned the original Employment Tribunal decision in July 2009, which had given Mr Tilson, an independent contractor, the option to claim employment rights (in the form of unfair dismissal) from his client, Alstom Transport.

The original Employment Tribunal decision from July 2009

The basis for the original Employment Tribunal's decision was that one particular clause in the contract between the employment business, Morson International, and Mr Tilson's personal service company, Silversun Solutions Limited, stated that "the individual was not subject to Alstom's direction, supervision or control" – however it was successfully argued that this did not reflect what was happening in practice. As a result, the Employment Tribunal considered the entire contract a sham, thus enabling Mr Tilson to claim the same rights as an employee.

The Employment Appeal Tribunal

Alstom Transport opposed the decision and took the case to the Employment Appeal Tribunal, where a different approach to the case was adopted. The appeal ruled that one clause cannot render the entire contract null and void, and that the relationship must be considered as a whole.

Mr Tilson also staunchly defended his independent contractor status during the contracted period and it was clear that all parties intended for him to be an independent contractor from the outset.

Brookson Managing Director, Martin Hesketh commented:

"The final ruling provided the correct result. The original verdict given by the Employment Tribunal neglected to examine the relationship between the contractor and employer and failed to look at the bigger picture, despite there being a contract in place which clearly identified the individual as an independent contractor."

Contracts should reflect working practices

"The lesson to be learnt from this case is that all genuinely self-employed workers should not only declare their employment status but ensure they maintain it in practice - and ensure that they have a contract in place which accurately reflects their working practices. It is also paramount that all parties are in agreement and understand the contract, and - as always - I'd urge all contractors to take specialist advice with regards to their IR35 compliance."

If this ruling had not been overturned it would have allowed contractors to benefit from preferential tax treatments and flexibility during an assignment with a client, while also being able to claim the same rights as an employee if the assignment was terminated early by the client. In changing employment status during the contracted period, would also allow HMRC to demand any unpaid tax and national insurance contributions from the contractor.

"A helpful decision" for contractors

Leading employment law firm, Pinsent Masons, agree: "This is a very helpful decision for employment businesses and contractors. All too often, parties operate on the basis that an individual is engaged as an independent contractor, only to be caught out by omissions or inconsistencies in the contractual documentation.

While it will always remain best practice to ensure that contracts accurately reflect the intention between the parties and the reality 'on the ground', this case is a timely reminder that an employment relationship should not be implied in circumstances where it is not necessary to do so in order to make business sense of what occurred."