The Inland Revenue have had mixed success with recent IR35 cases. The High Court upheld the decision of the Special Commissioners earlier this year in Usetech v Young, but the Revenue suffered a defeat at the Special Commissioners in Ansell Computer Services Ltd. v Richardson.

Interestingly, IR35 also featured briefly in Artic Systems, with Mr Jones believing (mistakenly, as it later transpired) that IR35 applied to two later years. In those later years, Mr Jones took a "full" salary and no dividends were paid.

AnseIl

In Ansell, Mr Ansell worked on defence contracts with Marconi and BAe Systems, and carried out most of his work at their secure premises. Mr Ansell nevertheless had considerable freedom about the hours worked, and with regard to taking time off, merely informing the end client as a matter of courtesy and not to obtain permission

Summary of Contracts

Mr Ansell, via his company, undertook research at his own expense and was provided with none of the normal benefits provided to employees, such as use of on-site parking and he was not entitled to join the employee social club. He did not benefit from the company pension scheme, share options or company related bonuses. He was not entitled to sick or holiday pay, or redundancy if his work was curtailed. The contract could be terminated at short notice, without the usual notice periods that employment law would impose. The Special Commissioner heard evidence, including evidence from employees of the two end users, a feature that is becoming more commonplace as the reality of the contractual arrangements is tested, in addition to looking at the written terms.

Mutuality of Obligation

The Special Commissioner was asked on behalf of Mr Ansell to consider, as part of the evidence the lack of mutuality of obligations, as there was no obligation on the end-users to continue to use his services.
However, as the Special Commissioner had reached a clear conclusion based upon the other evidence, he declined to rule upon whether there existed insufficient mutuality of obligation to support an employee relationship.

Decision

The Special Commissioner overturned the Inland Revenue's determinations and ruled that under the hypothetical contract required to be considered under IR35, Mr Ansell would not have been an employee.

Usetech

The High Court has recently dismissed an appeal in this case. The case gained widespread attention as the initial hearing was conducted in Mr Hood's own home, as he was too ill to attend in London.

Background

The contract between the appellant Company and the agency did not specify the hours of work. Mr Hood had son1e flexibility about the hours he decided to work, but he was expected to agree those hours with the n1anager to whon1 he reported and, within reason, to keep to those hours. Mr Hood was only paid for the hours he worked; he did not receive sick pay or holiday pay. The contract provided for the substitution, by the appellant Company, of an alternative worker.
The taxpayer raised two arguments in the appeal. These related to the right of substitution and the lack of mutuality of obligation.

Right of Substitution

The Judge (Park J) held that the hypothetical contract between Mr Hood and the end user would not have contained a substitution clause under which it would have been open to Mr Hood to provide a suitably skilled substitute, rather than provide his services personally. It therefore followed that the court did not accept the right of substitution argument.

Mutuality of Obligation

The facts lent themselves readily to the conclusion that, if Mr Hood had been working for the end user under a direct contract, it would have been a contract of employment. The end user provided work for Mr Hood over a continuous period of 17 months, and provided enough work for him to be working for 58 hours in a typical week. There was nothing causal about the engagement. Accordingly the court was unable to accept the lack of mutuality argument.

If you feel you may have a problem with an IR35 issue and wish to discuss it call Stuart Atkinson on 01482 226791

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