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Contractor Tax Protection Tax Liability Cover (TLC35) and IR35 insurance from Qdos Consulting

IT Contractor ruling does 'not set employment precedent'

Published on Mar 14, 2006 |

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The Court of Appeal has ruled that a limited company contractor was, in fact, an 'employee' of his client, Cable & Wireless. IT Contractors found to be 'employed' by their end client, even if they work via their own limited company, will be subject to IR35 under the employment status rules.

However, industry experts say that the ruling in this case does not set an employment precedent for other contractors.

The judgement in Muscat vs. Cable & Wireless found that Mr Muscat was an employee of Cable & Wireless, even though he supplied his services through his own limited company and a staffing company.

Matthew Brown, Managing Director of giant group plc said:

"This case is highly unusual because Mr Muscat was an employee of Cable & Wireless, but left work on a Friday as an employee to return on Monday as a limited company contractor. As a contractor he was still treated like an employee, hence he was still effectively an employee under the 'guise' of a contractor."

According to giant, the problem arose because the company Mr Muscat worked for originally, called Exodus Internet, wanted to cut staff to make itself more attractive to its potential acquirer, Cable & Wireless. It was Exodus Internet who shoehorned Mr Muscat into being a contractor and then continued to treat him as an employee. For example, as a contractor Mr Muscat still had an employee number and was still included in the Cable & Wireless departmental structure and headcount.

Matthew Brown says: "End users have no reason to panic. The Muscat vs. Cable & Wireless type of scenario is highly unusual, so the outcome of this case gives no indication of how tribunals will rule on future 'normal' claims."

"End users and contractors who continue to operate in a professional manner have nothing to fear from this ruling."