Previously overlooked Tribunal case proves HMRC isn’t always right when it comes to IR35

A previously-overlooked Tribunal decision involving a company that successfully challenged the IR35 status of a number of it’s contracts once again demonstrates that HM Revenue & Customs’ (HMRC) ‘narrow’ classification procedures are not always right when it comes to the intricacies of IR35 and Mutuality of Obligation (MOO).

The case of Armitage Technical Design Services Ltd (ATDSL) v HMRC first drew to a close back in November 2016, but has only very recently came to light, due to the fact the Tribunal’s decision was issued orally and no written findings were initially provided.

The matter involved Mr Armitage’s efforts to appeal HMRC’s initial finding that ATDSL’s contracts with a company known as Diamond Light Source Ltd (DLS) during 2009/10 and 2013/14 were all within IR35.

Examining the case, the Tribunal found that the contracts in question contained right of substitution clauses, which Mr Armitage was aware of but said had never been exercised.

It also considered that DLS had engaged ATDSL’s services due to the fact that it was having trouble sourcing appropriate expertise in-house to tackle the work that needed to be done.

As a result of this, the Tribunal found that the right of substitution was more ‘theoretical’ than ‘practical’ over the course of their working relationship.

Furthermore, in terms of the classic issue of ‘control’, it found that DLS had very little control over the ways in which ATDSL delivered its services. Due to this, the Tribunal noted that DLS was by no means “the master” of ATDSL.

In terms of MOO, the Tribunal noted that it was clear that one party had agreed to work for the other in return for payment. However, it was not satisfied with HMRC’s ‘narrow’ view of MOO and indicated that the case at hand featured more indicators of a ‘contract for self-employment services’ than of an ‘employment service’ in this particular case.

As has previously been evidenced by the likes of HMRC’s Check Employment Status for Tax (CEST) tool, the case demonstrates that HMRC’s ‘narrow’ view of the complex issues surrounding IR35 will not always result in the correct IR35 classification.