Recent Tribunal decision highlights complexities of IR35

A recent Tribunal decision highlights the complexities of IR35, which, in light of recent developments, is not always as straightforward as HM Revenue & Customs’ (HMRC) Check Employment Status for Tax (CEST) tool.

In the case of limited company contractor Mark Daniels (MDCM Ltd) versus HMRC, Mr Daniels won his IR35 appeal by overcoming three status factors that all went against him.

Perhaps most notably, it was clear from the evidence put forward that STL (the end client) ‘directed’ Mr Daniels’ duties during his hours of work as a night shift manager.

On top of this, Mr Daniels was not formally integrated into STL’s organisation and there was no notice period between Mr Daniels and the company in the event either party decided to terminate his contract. Furthermore, Mr Daniels was paid a fixed daily rate for the work he carried out for the company.

In contrast to a typical IR35 inquiry, the Tribunal found that Mr Daniels was “not controlled any more than any other contractor” despite STL dictating his work.

It also noted that the fixed daily rate he was paid pointed “towards Mr Daniels being self-employed” and that the fact he had “no entitlement to any employee benefits” was “inconsistent with [traditional] employment.”

These comments come as somewhat of a surprise, as a typical IR35 inquiry would usually find that neither being paid a daily rate nor having a lack of entitlement to employment benefits, would have much of a bearing on an IR35 decision.

The Tribunal’s decision came even despite the fact that MCDM was unable to provide a substitute – and that the end client had confirmed at the hearing that a substitute would not be accepted.

In its decision, the Tribunal made reference to the case of Hall V Lorimer, where a Judge had previously noted that determining whether or not a person is genuine in business “is not a mechanical exercise of running through items on a checklist…The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered qualitative appreciation of the whole.”

In light of this, commentators have been keen to note that the case provides a direct contradiction to the logic behind HMRC’s CEST tool, which uses simple “checklist” style questions to determine contractors’ IR35 statuses.

Given the case law cited and some of the surprising revelations throughout the case, experts have stressed that the CEST tool is simply not fit for purpose – as a contractors’ circumstances can often be just as complex and unique as Mr Daniels’.

The comments come just weeks after a BBC Select Committee hearing revealed that some 97 per cent of BBC broadcasters who had used the CEST tool for help in determining their employment status had been ‘failed’ by the system.

Critics continue to voice concerns that HMRC has ignored the ‘wealth of case law’ which ought to be utilised when delivering any important decisions in relation to IR35.