Watson Buckle Blog
IR35 is down but not out
Many self-employed workers who live in fear of being caught by the controversial IR35 legislation could be forgiven for feeling a sudden surge of optimism after HM Revenue and Customs’ defeat in the ‘Novasoft’ case earlier this year – but they should not crack open the champagne just yet.
IR35 was introduced in 1999 as the then chancellor Gordon Brown sought to crack down on so-called ‘disguised employment’ where an individual effectively does the job of an employee, but through their own company in order to save on tax.
The rule has faced fierce criticism for its range and complexity, catching out many genuine contractors and forcing extra costs on others.
The recent tax tribunal concerned Novak Brajkovic, director of IT contractor Novasoft Ltd, who had been accused of being a full-time worker at the biotech company. While the judge eventually ruled in his favour, on the grounds that he was not ‘part and parcel’ of the company’s organisation, this remains an exceptional decision and may not be applied to other contractors in the same position.
This was only one case, and a first-tier tribunal case at that. HMRC will still work on established principles when determining employment status, and it would take several more court reversals before it could be argued that the tide had turned against them.
In fact, with the new coalition government set to review IR35 as part of its tax simplification drive, we may see the abolition or amendment of the rule before there are a significant number of further court cases.
John Kinsella
Tax Partner
Watson Buckle
