Thu, 3 Jun 2010

IT contractor wins IR35 tribunal appeal in 'borderline' case

An IT contractor has won an appeal against HMRC Commissioners on the interpretation of the controversial IR35 law governing employment status of individuals claiming self-employed status.

A tribunal decision last month ruled on the Novasoft case brought by Novak Brajkovic against HMRC. Between August 1998 and December 2002, Mr Brajkovic worked as a self-employed computer analyst/programmer with Avecia, under the name Novasoft, in a deal arranged through the agency Lorien.

Under the IR35 legislation introduced in April 2000, HMRC served formal notices on Novasoft in 2005 under the Income Tax (Pay As You Earn) Regulations 2003 and formal decisions under Section 8 of the Social Security (Transfer of Functions) Act 1999 based on its determination that Mr Brajkovic was effectively a ‘disguised employee’.

Novasoft used HMRC’s IR35 assistance service to check whether the IR35 legislation applied to its circumstances in January 2002. HMRC officials undertook further enquiries – including interviewing managers at Avecia – that ultimately led to the assessments issued in 2005.

HMRC’s view was that ‘Mr Brajkovic did not present an image of a businessman offering his services to the marketplace; rather, of someone comfortable working for the same client on terms equivalent to employment.’ As the two sides could not agree, the case eventually ended up in front of the Commissioners.

But the tribunal ruled that Mr Brajkovic had no rights to any typical employee benefits or statutory protection based on the fact that he was able to take on other clients that did not conflict with the work he did for Avecia, though it described the case as ‘borderline’.

Tribunal Judge Peter Kempster concluded: ‘We consider that the overall picture painted is one of a contract of self employment.’

IT contractors have waged a long campaign against IR35. Online magazine contractorcalculator.co.uk called the verdict ‘staggering’, but warned of a possible win by HMRC on appeal.