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At DNS, IR35 review is a part of services offered, and we regularly come across clients who despite having a strong case to make out against an HMRC order, have desisted from appealing. As certified and experienced accountants, our stance has been simple and straightforward. We advocate compliance with regulatory bodies, while at the same time exercising the right to appeal when an unjust order is passed. The right to appeal in tribunals is enshrined in various tax laws. Whenever we find reasons to believe that an order has been unfair either by incorrect interpretation or application, we have advised and assisted clients to appeal. Here is proof of one individual’s success in filing an appeal. Without any legal representation, he was able to prove in a tribunal that his contract was outside IR35.

Brief History of the Case


Brief History of IR35 Case

Appeal number: TC/2017/01591 heard by First Tier Tribunal Judge Ian Hyde, pertained to a case between Mark Daniels and the HMRC. The HMRC had deemed that the arrangement between Mark Daniels (director and principal employee of MDCM) and Structure Tone Limited constituted a contract of employment and considered it to be within the IR35.

Mark Daniels and his wife were directors and principal employees of MDCM, which provided construction management services to businesses. MDCM entered into a contract with Solutions Recruitment Limited for providing services on the evening shift to STL (Structure Tone Limited). The terms of the agreement did not come with any notice period or benefits. Consequently, being the principal employee, Mark Daniels was engaged in the night shift at a work site in Midlands. The HMRC determined that the terms of the engagement construed a contract of employment for the period from 2012-14 under PAYE Regulations and Section 8 of the Social Security Contributions.

The appellant Mark then filed an appeal against the assessment. The Tribunal heard the appellant and respondent before ruling in Mark’s favour, categorically stating that “control” was essential to prove that the contract fell within the IR35 net. This caused embarrassment to the HMRC considering that it came on the back of other similar cases where “control” was key to determine if contracts were within IR35. Mark Daniels had produced among others, four other similar contracts between MDCM and Solutions Recruitment Limited to prove the nature of services offered.

The appellant submitted orally in court about the nature of his job, and his submissions were substantiated by the finance director of STL, the company that had engaged the services of MDCM through Solutions Recruitment Ltd. The submissions of the appellant and the witness proved that STL did not exercise control over Mark Daniels as an employee. This went in favour of the appellant and is being hailed as another landmark ruling that promises hope to others who have found themselves at the wrong end of an HMRC IR35 determination. For the appellant, the ruling came as a relief despite the fact that three status factors in the IR35 determination were stacked up against him. Mutuality of Obligation, Substitution and Financial Risk were the other three factors that went against him. However, he managed to emerge victorious with the ruling, despite a Project Manager being on the shift where the appellant was contracted to work on the evening shifts at a construction site.

How this impacts other Contractors

A few standout points are worth mentioning here. The contractor in question, Mark Daniels, despite suffering a setback on three status issues, was able to earn a ruling in his favour regarding IR35. What it effectively means is that, if a contractor feels that an HMRC directive is partially right and partially wrong, he needs to explore the possibility of filing an appeal. The ruling further suggests that a contractor should not be caught by IR35, if :

  • He is not controlled by the client
  • He receives a daily rate
  • He is not entitled to benefits
  • He has no notice period
  • He is not part and parcel of the client’s organisation

Lastly, although the contractor won the case, judge Hyde noted there was mutuality of obligation between himself and STL. It was also found that in spite of having the substitution clause, personal services were required as the contractor wasn’t allowed to send a substitute. This clearly implies that contractors shouldn’t consider their contract to be a reflection of their actual working practices.

How we can Help


DNS Accountants for Contractors

Rulings of other IR35 reviews in the tribunal are awaited and this vindicates the stand of accountants who have stood by clients in claims that contracts were outside the IR35. With the right kind of guidance and support in reviewing and rectifying the clauses and contractual obligations, it is possible for many contractors to find relief from HMRC determinations in IR35 cases.

At DNS, we have in the past, reviewed the terms of contracts for entities, both by itself and in the context of the working practices and procedures in the company that is party to the contract. Our IR35 Testing Tool is based on case laws and offers instant results of Pass/Fail/Borderline status of contracts entered into by the contractor. The free tool has been conceived and developed by experts with extensive professional knowledge of IR35 clauses. Taking the test now can help you prepare for the future, especially, private sector clients who may soon be hit by the new reforms.

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