Umbrella company contractors will no doubt be interested to learn that an unprecedented verdict was recently passed down in an IR35 case.
The tax tribunal case in Bristol has become the first “split case” in the history of IR35. John Spencer, a UNIX expert, was deemed to be outside the scope of IR35 for the first few years of a contract, but then he became a disguised employee even though he trading under a limited company and was still contracting to the same company.
Paul Mason from Abbey Tax said he had never heard of a similar case before. A contractor’s status is either inside or outside IR35, not both.
However, he went on to say that the judge did make a valid point to Mr Spencer when he said that he was doing specific work and projects at first, but then his role became no different to that of a permanent member of staff.
This case clearly highlights the importance of considering IR35 for each individual contract, including the time it comes up for renewal or extension.
In the case of Mr Spencer, it is hard to define exactly when his status changed but the judge ruled that there were indications of a change in relationship around the end of 2003. The judgement therefore stated that Mr Spencer was not classed as an employee, and therefore not covered by IR35, for the three years leading up to the end of 2003.
From Mr Spencer’s perspective, this ruling was a partial victory because it has reduced substantially the £140,000 sum that HMRC had demanded from him.
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