ClearSky overturns IR35 ruling saving our client 80k

Last week we were delighted to receive a First-Tier tribunal judgment in favour of one of our clients. The ClearSky team had been working very hard to fight HMRC’s case and the subsequent result has some interesting points relating to IR35 in it.

As a bit of background, our ClearSky contractor had a long standing relationship with their end client over total period of 7½ years.  After a lengthy correspondence, HMRC determined that our contractor was indeed caught by IR35 and that the client was now liable for outstanding tax and NI contributions dating back over the whole of the 7½ year period!

Some of the working practices of the contract meant that it was vulnerable to an IR35 investigation and at the tribunal ClearSky conceded that, in view of the length of the relationship and the substantially 9.00 – 5.00 nature of the engagement that had developed, the later years probably were caught. As a result, we invited HMRC to settle on this basis. Unfortunately they refused, insisting that all years were caught by IR35, so it was down to the tribunal judge to make the decision.

At the tribunal hearing the judge agreed with ClearSky in that the first 3½ years were not caught by IR35.  We were delighted by this as this decision as it has reduced HMRC’s claim against our client by £80,000 – more than half the sum they had wanted.

However, this case demonstrates, firstly, that any lengthy relationship with the same end client is likely to lead to the relationship being viewed as a disguised employment and, as a result, caught by IR35. Secondly, it serves as a reminder that it is not just the contract that determines IR35 status; working practices definitely come into it. Finally, that HMRC’s intransigence should not deter pursuit of appeals against their decisions. In this case we were able to save our client over £80K.