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The first tier tax tribunal ruling was able to define Primary Path Ltd as in business of its own account, making it the third victory in recent months against IR35 misapplication.
Phil Winfield, director of Primary Path Ltd, estimated that given the length of the investigation, his legal bill alone could have been in excess of £50,000 had he not had tax investigation insurance in place.
Speaking after the decision, Mr Winfield said: "On top of the considerable emotional and financial strain of this experience there has also been the stigma hanging over me and my business for many years.
"I would have faced costs in excess of £50,000 due to the length of this investigation. In today's age of accountability, the amount of time HMRC took to argue their case means that the figure this has cost the taxpayer must be enormous, when compared with the amount they were fighting for."
Key factor
A key factor in the ruling appeared to be the presence of what could be described as a pay-as-you-go relationship. In the context of specialists, remuneration by reference to hours worked at an hourly rate is, in the present world, a feature of the fee charging structure of professional service firms (and for that matter, plumbers, electricians and other skilled technicians and craftsmen).
The Tribunal found that the level of control or supervision did not go beyond that which one would expect in the hiring of an independent contrator; there was no obligation beyond paying for work done; the ability to propose a substitute was inconsistent with employment and that, when applying the 'in busines on your own account" test, it was clear that the relationship between Mr Winfield and his client was one for independent services.
Accountax, who represented Mr Winfield pointed to the need to obtain regular assurances of consistency between with terms of the contracts between the agency/freelancer and the agency/client. Accountax said: "All too often in IR35 cases where there is an agency in the contractual chair you are faced with inconsistencies between the contracts which can protract HMRC's enquiries."
In this case the Judge found that there was a 'fair degree of consistency' between the various contracts, which, Accountax felt, had somewhat eased the road to constructing the hypothetical contract.
However it was an overview of all factors that led the tribunal to rule that there was a clear picture that the relationship between his client, GSK, and Mr Winfield was one of an independent and self-employed contractor and not that of employer and employee.
Matt Boddington of Accountax said: "Despite the series of defeats we have inflicted on HMRC in recent months do not be fooled into thinking that HMRC will change tactics For evvery Phil Winfield out there brave enough to take on HMRC because he is represented, there are hundreds of contractors who bow down to HMRC because they did not seek advice."
John Brazier, managing director of trade association the PCG, said: “We are still fighting IR35 on all fronts to defend our members. This means meeting HMRC both in the courts to defend individual cases and at policy level in the IR35 Forum to stop these misapplied cases happening in future. Frankly, clarity for Phil was long overdue, but we are delighted he can finally get on with developing his genuine freelance business.”
For more information about IR35 and other cases, see Shout99's News on IR35.
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Susie Hughes © Shout99 2011
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