The contractor for a Government department, HMRC, successfully claimed for unpaid holiday pay after the Government agency determined that IR35 applied to her engagement. As a result, client, HMRC, insisted that their contractor, Susan Winchester join an agency payroll.
The action, which was funded and backed by freelancer group, IPSE, is a body blow to the Government’s chaotic and damaging IR35 policy. The case directly challenges public sector hiring practices put in place following changes to the off-payroll rules in 2017 and throws future plans to roll out changes to the public sector into further chaos and confusion.
The case also exposes the questionable practice of contractors being deemed ‘employed for tax purposes’, then being denied worker rights and entitlements.
Earlier this year, marketing and business development consultant, Susan Winchester, launched a claim in the Central London Employment Tribunal against HMRC, the agency Kinect Recruitment Ltd and three other parties in the contractual chain. It was for £4,200 in unpaid holiday pay under the Agency Workers Regulations.
Ms Winchester’s company, SJW Marketing Solutions Ltd, was originally engaged by HMRC in September 2016 to provide marketing services.
With the changes to off-payroll rules in the public sector about to come into force, HMRC ran the engagement through the controversial Check Employment Status for Tax (CEST) tool and determined that IR35 applied.
HMRC then required Ms Winchester to go onto an agency payroll, a decision that could not be challenged.
Ms Winchester claimed that as she was then effectively an agency worker under the regulations, she was therefore entitled to a clear, transparent amount of holiday pay and to the same holiday entitlement as employees of HMRC.
On the morning the tribunal was due to start, the parties agreed to settle the case for the full amount being claimed.
IR35 ‘fundamentally unfair’
IPSE CEO Chris Bryce said the case exposed the fundamental unfairness of the IR35 changes brought in last year. He said: “When HMRC forced Susan onto an agency payroll, with no opportunity to appeal, they thought they could wash their hands clean of any repercussions.
“Susan’s case sends a very clear message to clients, that if you are going to treat contractors like workers, then you’ve got to give them worker entitlements.
“You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay.
“This is further proof that the IR35 changes have sown chaos and confusion since they were introduced in the public sector last year. What’s even more extraordinary is that one of the culprits here is HMRC.
“If HMRC don’t understand their obligations under a system they’ve created, how can they expect businesses to get it right?
“Therefore, with Brexit hanging over the country, IPSE’s response to the Government’s consultation on extending the changes to the private sector is clear: abandon this disastrous proposal. We appeal to the Government to harness the talent provided by the freelance community and stop hounding them!”
Contractor, Susan Winchester said: “For me, the case was never about money: it was about what’s right and wrong and not being bullied into a position because of a flawed tax law.
“I’m a very fair person, with a strong moral compass, I would never have taken someone to court without a very good reason. But I just couldn’t understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge.
“I’m absolutely delighted that it’s now complete – for over a year this has been a very significant and stressful part of my life. And while I’m happy the case has now concluded, I know this isn’t the end of our fight against IR35 rules. Because, until the Government realises how terrible this policy is for individuals working within this increasingly important business sector, nothing will really change for the better.”
Contractor tax speciailists, Qdos, has said that following this case, the need for the Government to issue employment rights for workers operating inside IR35 has never been greater
Seb Maley, Qdos Contractor CEO said: “This case sets a huge precedent, showing that individuals taxed as workers and not as contractors deserve employment rights. It could well be the catalyst for many more cases like this.
“Following IR35 reform in the public sector, thousands of contractors have been wrongly placed inside IR35, which can cost them up to 30 per cent of their income - but still they do not receive employment rights. Frankly it’s an injustice and a situation that has to be resolved.
“This isn’t the first time where a contractor has battled HMRC and won. And as things stand, it won’t be the last unfortunately. Only recently, Qdos Contractor successfully helped an individual who worked at HMRC through an investigation, with HMRC once again showing its lack of awareness when it comes to IR35 - the very legislation it created.
“With further IR35 reform under consideration, this is a worrying situation. HMRC needs to wake up to the fact that individuals paying taxes like an employee must be offered rights. Given this is a case in which HMRC is directly involved in yet again, you wonder how much longer it can bury its head in the sand when it comes to this issue.”
Previous Qdos Contractor research shows that 89 per cent of contractors want employment rights when working inside IR35.
For more information about the controversial IR35 tests and rules; and other aspects of IR35, see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2018