How does Nasa Consulting stay at the forefront of
IR35?
Our clients are always asking us how we stay abreast of IR35
(and stop them paying too much tax!). The simple answer
is:
We speak to HMRC (its pointless thinking of them as your
enemy as many other professionals do - in our experience, if you
give them some respect, you will get it back)
- We constantly review employment law court cases (always being
up to date with new case law is imperative)
- We are now involved with the Government in drafting the
legislation. We have in fact recently made submissions to the
Office of Tax Simplification on 'where next for IR35', of which we
are hopeful that some of our points will be taken on board
Recent IR35 cases classically set out how our knowledge is built
and why we lead accountancy services on this tax issue today.
Genuine freelancer
An interesting IR35 case we have recently dealt with involved a
client, who played a key part in the development of the BBC's
iPlayer, who was randomly selected for IR35 inspection by HMRC.
After the initial panic subsided, we set about building the case as
to why he was a genuine freelancer and not a 'disguised employee'
of the BBC. We had extensive contact with HMRC in the process and
started by recording the business pointers in the relationship to
create a new and hypothetical contract between the individual
worker and their client (it's hypothetical, as the contracts in
place are only between the end client, the agency and the workers
company). We essentially had to write a new contract based on the
working characteristics and guarantees between the two.
In this particular case, we wrote terms to point out that:
The supplier was already skilled in 'content on demand'
user awareness issues and not trained by the client
- The client did not guarantee work and would not pay the
supplier if timesheets weren't completed or works done
- The supplier carried large liabilities in the contract, which
required insurances
- The supplier had the right to substitute the individual
carrying out the work (although this was never required in
practice)
- That working regular hours at a client site was a by product of
the services required, rather than an employers relationship
indicator
- The supplier was not included in the clients HR process for
career development, appraisals, etc.
Following a lot of written dialogue with HMRC, which included
answering 97 of their pre-set questions, the Tax Inspector advised
us that HMRC agreed IR35 was not applicable to this worker. Due to
a constructive working relationship between us and HMRC, they also
took one step further and recommended a few changes to the Client -
Agency contract which would better reflect the intention of
the parties not to be one of employment, which was a real
triumph.
A week later, another IR35 case - MBF Design Services Limited v
HMRC 2011 (which has nothing to do with Nasa Consulting), completed
its 7 year journey through the Tax Court. We have included a link
below for those who like reading the legal judgments:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2011/TC00912.html&query=MBF+and+Design+and+Services+and+Limited.+and+HMRC&method=boolean
Case law provides IR35 guidance
Whilst the result is clearly great news for freelancers, the
judgment also provides the fundamental building block for knowledge
on IR35. Case law is the ultimate independent adjudicator on
exactly what makes an individual 'caught' by IR35 and in this
particular case the determents for the judge were:
- The end client did not provide a guarantee of work and would
not pay if work was not completed
- The venue and working hours of the contractor were not the
ultimate indicator of the relationship
- There was a contractual right for the contractor to be
substituted (although not carried out in practice, a genuine right
existed contractually)
- A named individual can be a specialist freelancer rather than a
'disguised employee'
- The supplier carried liabilities under the contract and could
work for other clients
- The worker was not included in the client's HR appraisal
process.
The one unfortunate issue for this contractor was that they had
to go through such a painful, drawn out and expensive process of a
court case against HMRC. It is obviously much less painful if HMRC
agree beforehand that IR35 does not apply and we would always
advise trying to settle out of court wherever possible.
Summary
So to summarise, Nasa Consulting's knowledge is exemplified by
reading court judgments on IR35 ensuring we are fully up to speed
at all times with the most recent case law, along with maintaining
open and constructive dialogue with HMRC and working with the
Government on the legislation. We are confident that this
approach will also keep us up to speed when inevitably the IR35
legislation changes or morphs into something else.