An IT contractor faces a huge tax bill after losing his landmark IR35 appeal. More worryingly, however, is that the loss may have undermined long-established defences against IR35 for the contracting world in general.
Dragonfly Consultancy Limited faces a huge £99,000 bill after its director was found to have been ‘within IR35′ during an IT contract with the AA.
In January 2008, the Special Commissioners agreed with HMRC that Dragonfly’s director, John Bessell – a systems tester, should be treated as being ’employed’ for IR35 purposes by the AA.
At the hearing, it was acknowledged that the contractor had a limited right of substitution, but overall he was effectively ‘part and parcel’ of the organisation – a strong pointer towards being caught by IR35.
The judge presiding over the appeal hearing, Mr Justice Henderson, agreed with the original Special Commissioner’s opinion that Mr Bessell’s IR35 defence was weak.
Although Mr Bessell had paid for his own training and equipment, the overall pointers towards ‘self-employment’ were not strong enough for his contract to be outside IR35.
Mr Justice Henderson said that it was ‘unassailable’ that Mr Bessell had a relationship of employment with his client. He found that there was nothing in the case to suggest that the contractor could have been ‘in business on his own account’.
The judge concluded that Bessell “would have been an employee had he been directly engaged by the AA.”
In light of the Dragonfly IR35 appeal verdict, a leading IR35 status expert says that IT contractors should review their IR35 status and mitigate their risk.
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