A UK IT contractor working in the public sector recently won his appeal against Her Majesty’s Revenue & Customs (HMRC). The dispute was over a £27,000 tax bill he was hit with thanks to IR35 rules. A sound knowledge of IR35 legislation helped this contractor win his case, and the win has since cast further doubt on HMRC’s interpretation of IR35. If you’re concerned about falling within IR35 we suggest you read on.

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The appeal

IT contractor Ian Wells won his case over the work he did for the UK Department of Work and Pensions (DWP) on their Universal Credit project between 28 May 2012 and 4 April 2013. Wells worked as a business analyst through his limited company, Jensal Software Limited.

HMRC initially said that the contract fell under IR35 because the work Wells was doing was not casual, as it was over a period of 10 months. During this time he worked each day between 8:00/9:00 and 18:00. Because the contract was deemed to fall within IR35, HMRC demanded that Wells pay income tax of £14,658 and National Insurance Contributions of £12,011. These are the same amounts that a full-time employee would have to have paid.

The win!

The court hearing took place between 4-6 October 2017, and Judge Jennifer Dean ruled on 16 May 2018 that all elements of the contract between Wells and the DWP pointed to him being an independent contractor and not a full-time employee. This was a massive win for Wells and the ruling has given hope to contractors across the UK who have been wrongfully taxed on their income.

The case was brought to the First-Tier Tribunal Chamber represented by IR35 specialist, Qdos Contractor, who acted on behalf of Wells. Qdos Contractor CEO, Seb Maley, said: “Despite HMRC implementing and enforcing the rules, this verdict shows that they can’t accurately assess a contractor’s IR35 status. The government is serious about clamping down on what they believe to be non-compliance, but worryingly can't recognise whether a contractor belongs inside or outside IR35. That the individual was working on a government project simply adds to the irony.”

See also: IR35 and public sector clients: How to avoid a nasty surprise on your tax return

The importance of understanding IR35

So it’s clear that a thorough understanding of IR35 legislation and its implications can end up saving you a large chunk of change. Unfortunately, HMRC’s guidelines around IR35 are rather difficult for the average person on the street to understand. HMRC developed an online calculator that can supposedly determine whether you are within IR35. Unfortunately, its reliability is questionable, to say the least. 85% of contractors have previously stated that they do not trust the online calculator.

Getting expert advice on your tax status is of paramount importance when 25% of your earnings is at stake. It’s difficult to know where to start with IR35, but that’s where expert contractor accountants come in.

We have over 20 years’ experience helping contractors navigate their accounting and would be more than happy to assist you with any query you may have.  You can give us a call on +44 (0) 20 7759 7553 or send us an email on contracting@sableinternational.com.

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