IR35 victory for contractor in tax tribunal

A limited company contractor has won an IR35 case in the first-tier tax tribunal.

Mr Fitzpatrick provided design services to Airbus for the A380 project. Airbus had a contract with the principal contractor, which in turn had contracted with Mr Fitzpatrick’s own company. HMRC claimed that his company should be liable under the IR35 rules.

It is quite clear from this case that the tribunal needs to look at all contracts. The lower level contract made clear that this was a relationship of self-employment. The question for the court was whether or not the upper level contract was relevant. The court found that the upper level contract should be taken into account. However because of the hirer’s right to terminate immediately, there plainly could not have been the hypothetical employment relationship that is a requirement of IR35.

For a long time there has been dispute as to whether or not the upper level contract is relevant to IR35 status. This case helps to settle this argument, but may prove to be a problem for HMRC as the vast majority of agency contracts would include similar rights for the hirer to terminate immediately.

If you are an agency concerned about IR35, remember that agencies cannot be liable for IR35 tax liability. Agencies may however wish to keep their contractors happy by assisting with their IR35 status, and the safest way to do so would be to set up the upper level contracts so that it reflects a genuine self-employment relationship. For example the hirer may be entitled to terminate the supply with immediate effect.

Lawspeed drafts contract documents for recruiters, contractors and other intermediary staffing companies. We also provide tailored advice on IR35 and other issues associated with contracting and staffing supply chains.