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HMRC suffers another IR35 defeat - engineering contractor not an employee
Posted Jul 4, 2011
In an IR35 defeat for HMRC, a tax tribunal failed to find any evidence that a contract of employment existed between an engineering contractor and his client, strengthening calls for HMRC to improve the way it targets IR35 status checks.
Overview of the Marlen Limited Case
This case involves Mr Hughes, an engineering contractor working for two divisions of JCB via his own limited company, Marlen Limited. Mr Hughes was represented at the tribunal by Accountax Consulting.
At a tax tribunal hearing, HMRC failed to show that IR35 applied to Mr Hughes' contracts with the engineering company, as he would have to be deemed to be an 'employee' for this to apply.
Although there was evidence that a degree of control existed over Mr Hughes' work, other factors which are needed to prove that a contract of employment existed were not present - particularly a mutuality of obligation between the two parties.
Some elements which helped Mr Hughes' case included; his flexibility in terms of his working hours and time off, the fact that he was sent home without being paid when systems were down on occasion, and early terminations served by both sides over the course of his dealings with the client.
More details will be available once the full judgement is published.
Will the IR35 Forum improve things?
The new IR35 Forum, which was set up following Budget 2011, has been tasked with overseeing the overhaul of the way IR35 is administrated. One of its initial aims is to ensure that the Intermediaries Legislation is targeted better, so that only strong IR35 status cases are even investigated in the first place. This latest judgement may strengthen the calls to ensure procedures are put in place to prevent HMRC from taking on cases which have little chance of succeeding.
In its coverage of the Marlen Ltd case, the PCG commented: "With such a string of defeats one asks whether HMRC will change their approach to IR35 cases, since it is becoming increasing apparent that the cases they are choosing to pursue are clearly not within the ambit of IR35."
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