Contractor wins IR35 appeal after five years

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An IT contractor scored a rare victory at the HMRC Commissioners in an appeal against the tax department’s interpretation of his service contract.

A tribunal decision published on Friday 7 May provides details of the decision in the Novasoft case brought by Novak Brajkovic against HMRC. Between August 1998 and December 2002, Brajkovic worked as a self-employed computer analyst/programmer with Avecia 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 etc) Act 1999 based on its determination that Brajkovic was effectively a “disguised employee”.

Of particular note in this instance was that Novasoft used the HMRC’s IR35 assistance service to check whether the IR35 legislation applied 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 stance was that “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.

Brajkovic gave no formal evidence at the hearing in December 2009, but acted as his own advocate.  Doing so denied HMRC’s representative the opportunity to cross-examine him formally, but the Commissioners accepted the arrangement was satisfactory. 

Most of the 20-page decision revolves around the legal principles defining the nature of Brajkovic’s contract.

Also see Inside Story: The Novasoft IR35 case

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John Stokdyk
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AccountingWEB.co.uk
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12th May 2010 11:43

Not surprising

This decision doesn't surprise me.

The basic principal of self-employment is that the relation between business and worker changes. Once the commissioners are convinced of that fact then IR35 ceases to be.

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12th May 2010 11:50

Cameron Clegg

Can someone who knows one of these two chaps, just get them to abolish IR35 and save us all a headache. Let people decide what they want to be, ie a co or an employee, if HMRC dont like it then they can change the tax rates and abolish the small company rate say, simples. 

 

 

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By Anonymous
12th May 2010 17:13

IR35

 IR35 is the most cumbersome tax to operate and often leaves people with a great deal of uncertainty and stress.

It is typical of the previous government (probably inspired by Europe) which until Alistair Darling delighted in bringing in legislation and taxation complexities without sufficient resources to monitor them.

At least Mr Darling simplified CGT with the 18% rate and, dare I say, the abolition of the 10% band.

A system is unsustainable when the professionals cannot understand the rules-let alone the taxpayer.

Please simplify our system-get rid of bureaucracy.  Coalition please engage in a demolition of red tape and the nanny state.

 

 

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By Anonymous
13th May 2010 09:51

IR35 causes small companies to pay employers NIC when there are no benefits of employment eg sick pay. This is unfair and should be abolished. Why not restrict the tax credit on dividends to the amount of employees NIC paid by the shareholders in effect making them pay employees NIC in these businesses. There are other factors to consider as well but I need to get some work done........

Ivor Client

 

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13th May 2010 11:24

careless - i think so....

Surely the REAL error was M Assive Co (Novasoft) being dozy enough to employ self-employed contractors. They should be taking professional advice before entering into vague arrangements which leave them open to claims.

It was an open goal for HMRC, which they failed to hit due to their own inabilities. Mr. Brajkovic is very lucky to get away with it also.

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13th May 2010 15:21

Careless?

Novasoft *is* the contractor's company- he's not self-employed in the tax sense, he's an employee of his own company.  He's self-employed in the layman's sense of the phrase, i.e. he's his own boss. 

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14th May 2010 13:45

careless 2

Hmm, yep I think you missed the point. Theres no self emplyed peoples involved in this or any CIS deductions for that matter, but thats another can of worms and who brought up CIS anyway

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By fernley
16th May 2010 20:10

Huge Congratulations

Congrats to Novak Brajkovic - I know from personal experience that he must be one very relieved gentleman right now. I thought my case was long and stressful, but mine was nothing compared to his massive long period of uncertainty.

Lisa (Lime-IT)

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17th May 2010 12:33

careless - i think so 2

well it's funny how this article in a supposedly professional environment is carelessly worded, and misleading -terms like "self-employed " are precise, and should only be used correctly? My own confusion arose as i have only just had my last self-employed IT contractor finally cave in and go limited, to his great disappointment. he had a contract with a massive operation who should have known better.

so in fact it's the company that fought the appeal not him? and it was the company facing the massive tax assessment not him? it makes a bit more sense now.

 

 

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17th May 2010 13:56

Financial Institutions

Trying telling the FI's that you are employed and work for your own Ltd Company. They treat you as a self-employed person, wanting salary, dividends and profit before taxation. Euroland treat the self-employed as a "worker" who can claim holiday pay and other PAYE benefits. etc. etc. etc.

Ludicrous!!!!!!!!!!!!!

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17th May 2010 19:14

"Who brought up CIS anyway?"

You did. :)

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