Construction Worker Wins Ir35 Tax Appeal As Court Finds He Was Not ‘treated As An Employee’


A contractor in the construction industry has successfully appealed an HMRC ruling that he was an employee, after a first-tier tribunal found he was not employed for IR35 tax purposes – prompting experts to warn about ‘complex’ IR35 cases increasingly being brought before the courts. 

Quantity surveyor Mark Daniels set up MDCM Ltd, a small organisation providing construction and management services, in 2004.

He worked with an introductory company, Solutions Recruitment Ltd, which placed him on a contract with construction company Structure Tone Ltd (STL) as a night shift manager in October 2012. Daniels worked full time in this role across two sites for STL until July 2013. 

HMRC sought to prove that the working relationship between Daniels and STL was one of employment under the IR35 tax rules, which meant he should be taxed as an employee. 

Under the off-payroll intermediaries legislation introduced by HMRC in 2016, an individual should not be taxed as an employee in cases where they work through a third-party intermediary rather than directly for a client.

HMRC argued that Daniels would be under a direct contract with STL were it not for MDCM, as his personal services were required to carry out the job, and that neither MDCM or Daniels incurred any financial risk as a result of the contract, making STL effectively his direct employer. 

It said the most important factor was that STL exercised a significant degree of control over Daniels, stating: “[STL] set what work was to be done and how it was to be done, Mr Daniels being required to carry out in each shift the tasks set by the project manager. STL also decided where and when the work has to be done.” 

An employment law test used by tribunals states that “[an employee] agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master”. 

However, Daniels argued that despite being expected to work in shift patterns set by STL, this did not constitute control, as all construction sites are run in this way. 

While he was required to report to a project manager, he was still able to organise his tasks during the shift, and was only visited weekly by a supervisor. 

The tribunal agreed that “STL did not exercise any more control on the site than they would over an independent contractor”. 

Daniels was also found to have no notice on the termination of his contract or entitlement to severance pay, and he paid for his own travel, hotels and other expenses. 

“We do not accept HMRC’s arguments about control but do agree that the requirement for personal services and lack of financial risk point to an employment relationship,” the tribunal judge said. 

“However, we find that the nature of the payment arrangements – a flat rate per day with no notice period and no entitlement to any employee benefits – are inconsistent with employment. Further, Mr Daniels was not treated as an employee.

“On balance, we find that under the hypothetical contract required by the intermediaries legislation, Mr Daniels would not be on an employment contract and so this appeal is allowed.” 

Lloyd Clarke, associate solicitor at Attwells Solicitors, told People Management that the judgment was “refreshing”, indicating a “very common sense approach” to the determination of whether a contractor falls within the IR35. 

“HMRC has routinely sought to argue, as was the case here, that ‘control’ by an end client is the most crucial factor and, further, that almost any control by an end client should indicate that a contractor falls within the IR35,” he said. 

“The tribunal here disagreed, stating that the control exercised by the end client was only that which was necessary for the operation of a large-scale construction site. 

“Secondly, Mr Daniels’ appeal was successful despite the fact that the tribunal found a number of important factors existed pointing towards him being an employee, such as personal service, mutuality of obligation and a lack of financial risk, indicating that the tribunal correctly applied the law in determining the terms of the hypothetical contract between the parties by evaluating the overall effect of the contract.” 

Andrew Chamberlain, deputy director of policy and external affairs at the Association of Independent Professionals and the Self Employed, said the decision raised questions about the effectiveness of IR35’s intermediaries legislation, warning it could have a wider impact on individuals and organisations wrestling with the tax. 

“This decision, while favourable for the contractor, just adds further proof that the IR35 rules are too complex and difficult to apply with any certainty,” he said. 

“HMRC looked at the relevant factors and decided that the IR35 should apply. The tribunal looked at those same factors and decided that it shouldn’t. If HMRC, with all its expertise, seemingly cannot make a correct determination, how are public authorities and individual businesses supposed to get it right?”

The ruling is the second significant IR35 judgment in two months, following a February ruling in which a former BBC presenter lost her IR35 appeal, and was ordered to pay £400,000 in unpaid tax to HMRC. 

A survey from Qdos Contractor recently found that 89 per cent of freelancers and contractors would like to be offered employment rights when working under the off-payroll legislation.

Meanwhile, a select committee of the Department for Digital, Culture, Media and Sport last week heard BBC presenters and staff gIve evidence of being ‘coerced’ into forming personal service companies by their employer so they could be treated as freelancers for tax purposes. 

HMRC did not respond to People Management’s request for comment. 


Original Source - People Management

business-directory Business Directory
smartbusinessdirectory Payroll Services Business Directory
truebusinessdirectory payroll-services Directory
payroll-services Directory