There have been two recent tribunal decisions made that could both affect IR35 in a bit way. The case of Uber recently went before the supreme court, and Uber drivers were declared employees by the Supreme Court. On the same day, Atholl House Productions went before the Upper Tribunal, and the tribunal found that the presenter was outside of IR35 from 2015-2017.
These two decisions offer insight and information about the decision-making of the courts related to IR35. Now that the roll-out is just around the corner, these kinds of decisions will serve as landmarks for contractors to decide whether or not they are at risk of falling inside of IR35.
What These Decisions Mean
The Uber decision means that the Supreme Court found that the contract that was in place was not valid due to the nature of their work. This means that the court will likely overturn contracts that are rendered invalid in other cases.
The court has the power to make these kinds of decisions, but it was not known before if they would actually use that power to reach determinations in IR35 cases. This is promising for contractors because the court has proven to be willing to set aside invalid contracts and also to uphold contracts that are valid, as in the case of Atholl House Productions.
The dividing line between statutory and contractual rights is very fine, and the courts have been very clear about where that line is drawn. This is a huge boon to contractors who are worried about what is to come with the new IR35 when it is rolled out.
The major outcome of these decisions is that employment tribunals will ignore freedom of contract to protect the rights of individual workers, and tax is not a place where individuals are afforded statutory rights. HMRC has no such rights to weakness or oppression affecting their rights.
Is the Window for HMRC Narrowing?
Experts are asking if these decisions mean that the Uber outcome has ramifications for IR35 going forward. The Uber case reiterated that parties are free to choose their economic structure and to select tax preferences based on their own knowledge of the choice they are making.
If this is the outcome of these kinds of cases, then tax tribunals should treat engagements on the same terms and not go against the choices that were determined in advance by both parties. This question really comes down to the definition of what is or what is not an ‘abusive transaction’.
HMRC has implied that they have the right to step in in these cases and ignore the paperwork to make sure they collect more tax. This goes against their stated desire to make sure that each contractor is given an individual status determination.
Experts are hoping that these decisions indicate that the contract reflects the court’s willingness to stand behind contracts that are not invalidated by either party and to penalize contracts that are invalidated by either the employer or the contractor. So long as the contractor provides the agreed-upon services without being compelled to work in a certain manner, and the engager does not require that the contractor perform functions that can only be done by employees, there should be no need for HMRC to become involved.
HMRC is asking contractors to assess contracts without all of the details of the contract being in plain view. These determinations are often highly inaccurate and fraught with problems that spill over onto both the engager and the contractor. These rulings are an important step toward providing proof that HMRC is not interested in the quality of contracts or the status of contractors but is instead just grasping at tax that it does not deserve to collect.
