I've just finished doing
an opinion on the IR35 status of a contract;
this particular Contractor has been in the same position for the last 4
years, extending every 3 months a contract first made before IR35 was a glint
in the Chancellor's eye - indeed, made whilst the Chancellor was a mere shadow
of the real thing, before the 1997 election.
Contract terms had not been revised to even attempt IR35
friendliness.
The Client insisted
on a contract which gave it a large degree of control over the Contractor, and
simply saw Contractors as a way of engaging temporary employees to fill
gaps. Contractors were in general
treated in no different fashion to employees - apart, that is, from any
question of such things as employee benefits.
Then the time comes, 2 days before the last contract expired, when the
Client said 'sorry, we're not renewing this time - policy and budget etc, I'm
sure you understand'.
I found it impossible
to see a way to view the Contractor as anything but a disguised employee. The Client had been reluctant to entertain
anything in the way of changes to the contract with a view to improved
IR35-friendliness, and the agent had not been motivated to press the
point..
With the 20:20 vision
that hindsight invariably offers he sees now that, come April 2000, the
Contractor now realizes that he could have simply said 'no', declined to renew,
and sought a fresh contract elsewhere.
Who knows, that may have had the effect of persuading the Client to
rethink its position.
That same clarity of
vision now reminds him that even faced with such an unfriendly contract, the
day might possibly have been saved if he had taken other steps - within his own
control - to act as though he were running a genuine independent business. Whilst as a starting point, the longer a contract
is, the more negative an effect that factor may have from an IR35 point of
view, the real relevant question to ask is whether its length makes it more
likely that the relationship is indeed an employment type of relationship, and
whether the mutual obligations one finds between employer and employee have
gradually and imperceptibly arisen over the period of time - or whether
remaining with that one client was simply a positive exercise of sound
management, by sustaining a particular golden goose. The latter may not be the strongest argument,
but there are certainly occasions when it may be true.
But to sustain such
an argument it would be even more important to pay attention to other factors -
such as at least making attempts to secure some other concurrent work, however
minor; investing in equipment and
reference materials, and in training or skills development (particularly where
there is a speculative element to such investment) - and making use of such equipment
and reference materials in the course of the contract; and doing all the other things that people
running their own businesses generally do - having their own letterhead,
business cards, and business insurances (PI, public liability, and employer's
liability), etc etc.
Even without the
'sound management' factor, a long contract dos not necessarily result in an
employment-type relationship; in the
recent case of Montgomery v Underwood, a receptionist engaged as
an individual through an agency for over 2 years was unable to show that she
was employed either by the agency or by the Client - though admittedly that
decision was a little odd, and was reached because of some rather strange
findings of fact by the Employment Tribunal, which the Appeal Court was unable
to interfere with.
In the case I was
considering however, I found it almost impossible to find any such straws to
clutch. The end result was that the
Contractor now faces a bill for some £10,000
in tax and NI that could, with a little planning and cooperation, have been
avoided.
Then we got to
thinking about other angles. Another
recent case - this time only an Employment Tribunal decision, not an appeal, so
not legally binding authority - was recently brought by a long-term Contractor,
and he succeeded in establishing that he had been an employee of the Client,
despite the fact that he had contracted through an agency and through his own
limited company. The case is O'Murphy
v Hewlett-Packard; it is
particularly interesting in that whilst it was decided a few days before the
PCG Judicial review, nevertheless if 'followed' certain principles covered by
the Judge in the course of the JR.
Whilst this case is not legally binding authority, my own view is that
the decision was almost undoubtedly correct.
The Contractor was represented by John Antell, who (according to the
report I have seen) in the course of the hearing lead the tribunal thoroughly
through the relevant case law, resulting in a decision which I suspect HP would
have great difficulty in appealing against.
If the Contractor I
was advising was able to show - as I believe he could - that he was an employee
of the Client for the purposes of employment legislation, then, having been
with that client for over 4 years, and being aged over 42, he would be entitled
to (1) 4 weeks at the contract rate in lieu of notice; (2) another 6 weeks either by way of
redundancy payment, or the basic unfair dismissal award (though this 6 weeks
would be subject to the statutory ceiling, currently around £230 per week; and
possibly (3) an unfair dismissal additional award - if he hadn't succeeded in
finding another position to walk into the next day. All of which could certainly make a
significant inroad into the IR35 bill.
This of course
remains in many ways a lose-lose solution;
the Client will be unhappy, as will the Contractor. And it won't encourage the Client to continue
to use Contractors - although it may encourage them to be a little more
cooperative in the future - expectations to both have and eat cake have always
required a synchronistic duality of the type which would have caused Leonard
Nimoy to exclaim 'but that's not logical, Captain'!
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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