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