IR35 Case 5 - Contracts
Key lessons from this case
- A Special Commissioner can overturn the decision of an Inspector where an original decision was requested by the contractor
- The contractor clearly demonstrated that he was not treated as a normal employee by his clients and the clients′ witnesses corroborated this under cross examination
- The Special Investigator was satisfied from the evidence that whilst, on the surface, the contractor appeared employed according to IR35, the nature of his work (part of a programming team) and the secret nature of his sector (defence) meant he had to work regular hours using only clients′ equipment.
Summary of the case
Background
Michael Ansell provided highly specialised defence related software engineering services to major defence industry clients like Marconi and BAe through his own company, Ansell Computer Services Ltd (ACS). The contracts with the clients were via an agency, Centre Dynamics Ltd (CDL), and the agreement between ACS and ADL had clauses allowing Mr Ansell rights of substitution and termination of the contract with the client.
Why did the Inland Revenue act?
The IR was requested to provide a judgement on two periods when Mr Ansell was working for clients Marconi and BAe, at their sites and using their equipment. The IR′s Investigator concluded that these periods of work were covered by IR35 provisions, and for the purposes of tax and National Insurance Contributions (NICs) Mr Ansell was directly employed by the clients.
Why did the contractors appeal?
Mr Ansell appealed to a Special Commissioner of the IR to review the case, which resulted in this judgement
Who won and why?
Mr Ansell won the case and the Special Commissioner concluded that, when working for Marconi and BAe, Mr Ansell was a bona fide contractor; also, that if the contractual relationship had been between Mr Ansell and the clients it would not have been a contract of service.
On the surface, it appeared that Mr Ansell did have an employee relationship with the clients. He worked normal business hours on site at the clients′ offices, using their equipment. When the Special Investigator examined the case in more detail, it revealed a number of facts that led him to conclude that Mr Ansell was a bona fide contractor and should not be subject to IR35 provisions:
- Although the contract with ACL was only with the agency CDL, there was a provision that required CDL to include certain terms with end-users of ACL′s services, including a substitution clause
- As Mr Ansell worked within a project team, he had to work similar hours to that team, most of whom were directly employed by the clients and who worked traditional office hours
- Given the secret and specialist nature of the projects, Mr Ansell had to use equipment at clients′ sites. He did in his own time and at his own expense also work additional hours at his home office reading journals and researching to ensure he kept up to date with latest technologies
- When cross examined, one of his project managers confirmed that Mr Ansell could under the terms of the contract come and go as he pleased, although out of consideration to project colleagues chose not to do so
- Being very experienced Mr Ansell did not require instruction or control, although his work was overseen by a project manager
- BAe were aware that Mr Ansell had the right of substitution
- Mr Ansell had none of the rights of employees, not even a parking space on site.
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