IR35 Case 7 - Long-term single client contracts
Key lessons from this case
- The contractor only worked with one client at a time, through a series of renewed six-month contracts
- Most of the IR35 tests applied by the IR in this case were positive, because of the contractor′s situation
- The nature of the work was ongoing maintenance, with fixed hours on site for fixed periods, not specific projects with specific deliverables
- The contractor was well integrated into the client′s organisation, with management responsibility for a team and reporting to a line manager.
Summary of the case
Background
Mr M J Renshaw provided IT consultancy services to insurance group NPI (which became AMP then HHG Plc) via agency Resource Matters Ltd (RML) through a series of six-month contracts. His personal services company, Netherlane Ltd (NL), was contracted by RML to provide IT consultancy to NPI, but did not have a direct contractual relationship with NPI.
Why did the Inland Revenue act?
The IR considered the successive contracts to satisfy the provisions and tests of IR35, and that the relationship between Mr Renshaw and the client NPI was a contract of service.
Why did the contractors appeal?
Mr Renshaw did not consider that he was employed by NPI and did not agree with the IR assessment of his status, or the resulting tax and National Insurance liabilities.
Who won and why?
The IR won. The Special Commissioner hearing the appeal considered that Mr Renshaw clearly satisfied enough of the IR35 conditions that his hypothetical contractual relationship with NPI would have been a contract of service. The Special Commissioner′s consideration of the relevant tests was as follows:
- Mutuality of obligation applied, as there was a stream of ongoing maintenance work available for the contractor
- Although the contract between NL and RML did include limited rights of substitution, in the hypothetical contract it was not a right, merely a possibility
- As the contractor managed a team of the client′s employees, control of the contractor was obviously necessary and a key feature of an employment relationship
- The contractor′s only work for the period was for the client, so he was considered not to be in business on his own account
- With no work being done for other clients and continuous work on ongoing maintenance, rather than specific projects, the contractor has an exclusive arrangement with the client which implies employment
- Because the daily rate is set, the contractor cannot earn more through doing extra hours, and in this case the contractor did work extra hours for no extra pay. A self-employed person would normally be able to get extra money for the extra time
- The contract between NPI and RML had a notice period. Having a notice period is unusual in self-employment
- A witness at NPI said the contractor′s role and those of employees were essentially the same and again there was no specific project assignment, just the ongoing maintenance; plus, the contractor was eventually replaced by an employee. This suggests the contractor was "part and parcel of the organisation", an important test of IR35 provisions.
All these conditions point to a contract of service with the client, and the Special Commissioner concluded that in the hypothetical contract Mr Renshaw would be an employee.
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