Delayed release of IR35 court judgement raises further doubts over HMRCs understanding of IR35



The IR35 case on Armitage Technical Design Service (ATDS) vs HMRC was released this week. The appeal was a success for the contractor, Mr Armitage, but more importantly adds more weight to arguments that HMRCs understanding of IR35 is seriously flawed. This is particularly apparent where the judgement contradicts HMRCs assumption on MOO, that where a contract is accepted, mutuality and personal service exist. We have summarised the details on this below, and linked to the court judgement for those who like to read the detail.

Background

Mr Armitage had been contracting at his client, DLS, providing expert electrical control & instrument design services. In HMRCs original victory, several of the contracts were found to be inside IR35 and generated an IR35 liability of £68,100 (plus £13k of penalties). The first tier tribunal upheld the appeal in January 2017.

In conclusion the tribunal found that a notional contract would have more factors of self-employment than of employment. There were several interesting observations made by Judge Rupert Jones, including:

  • There was a theoretical right of substitution although in practice it was never tested.

  • Although there was no one on site to physically supervise Mr Armitage in his work, he was under a fair degree of control (although not in terms of ‘how’ he completed his work).

  • The tribunal disagreed that acceptance of a contract implied that MOO was in place.

  • Provided his own equipment and specialist software to be able to complete his contract

  • Worked multiple other concurrent contracts with separate customers

  • He was not part and parcel of the organisation, nor invited to social functions, training courses or mentioned on any team sheets.

Whilst the conclusion seems to take a balanced view of the entire situation, it is our opinion that the commentary on mutuality of obligation may have the widest ranging consequences.

The judgement states ‘The mere offer and acceptance of a piece of work does not amount to mutuality of obligations in the context of employment status’. As you may well know, one of the biggest criticisms of HMRC online CEST tool (following IR35 reforms into the public sector) assumes that Mutuality of Obligation exists where a contract has been accepted. This judgement, along with similar recent cases (Jensal & MCDM) show that the courts interpret the very opposite to be true.

This raises significant questions about HMRCs CEST tool and their application of case law to their IR35 compliance activities. Furthermore, if HMRC cannot determine who should be caught by IR35, how can their assessment that 90% of the third of contractors they claim are ‘caught by IR35’ be believed with any credibility?

For those who wish to read the judgement in detail, you can find it here: ATDS vs HMRC 2017


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