IR35 Factors, IR35 Compliance, are you caught?

IT contractor, Novak Brajkovic, has won his appeal against an IR35 claim, which was initially triggered via his use of HMRC's own contract enquiry service!

From July 1998 until December 2002, his company, Novasoft Ltd, provided contract services to a biotech company - Avecia, via recruitment agency Lorien.

In 2002, Brajkovic, unsure of his status under the IR35 rules, used HMRC's own email service to gain an employment status opinion.

As a direct result of this initial enquiry, Brajkovic was subsequently found by the authorities to be a "disguised employee", and backdated tax and NICs from a period of time between April 2000 (when IR35 came into effect) and 2002 were demanded.

Novasoft appealed against this claim, and nearly five years later finally won this appeal.

Borderline IR35 case

At a tax tribunal in December 2009, at which Brajkovic represented himself, the judge ruled in favour of the contractor in a very borderline case.

The contractor had no right to substitution, and did not provide his own equipment. In many other ways, Brajkovic's working practices were akin to a normal employee at the firm, according to HMRC.

However, in terms of working hours and arrangements, the tribunal heard that Brajkovic enjoyed "flexibility that would not be available to an employee", which ruled in his favour.

In a notional contract, the tribunal found that contractor might also suffer a risk of non-payment, was paid on an hourly basis unlike employees at the firm, and would not have been granted standard employee benefits.

You can read the full details of the judgement, and how the key IR35 factors were applied in this particular case here.

In the end, the tribunal judge, Peter Kempster, considered that "the overall picture painted is one of a contract of self-employment.".

He also reiterated the words of Hart J in the Synaptek case that "Deciding, in a borderline case, whether a particular contract is a contract of service or a contract for services is notoriously difficult."

Beware submitting contracts to HMRC

Kate Cottrell, from employment status experts, Bauer & Cottrell, gave her opinion on the decision:

"Hats off to Mr Brajkovic for this IR35 win and for sticking to his guns throughout. This case shows again that the key issue in deciding IR35 is control (what, where, when and how) and as with all cases it all boiled down to whose evidence the Tribunal preferred on the day and the reality of the working practices.

"Despite HMRC having the end client on side the reality was that Mr Brajkovic had different rights to employees and he exercised them. A very welcome win but it is shocking that the case has gone on so long and perhaps the key message is that it all started because the contract was sent to HMRC for review which demonstrates that this customer service, which is still offered by HMRC, can turn into a full blown IR35 investigation."