The IR35 Lottery: Part 2

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It would appear that my previous article made a good bed time read - although not as popular as Harry Potter, it is pleasing to know that I appear to have a fan base; something that I didn’t achieve with the outside profession when I was previously in the employ of HM Revenue and Customs as a Status Inspector…

From experience, I prefer to tackle the subject of IR35 with the following points in mind in order to avoid the pitfalls and mitigate risk. I appreciate that others may not necessarily agree or indeed may prefer a different approach. What matters is getting it right for the client.

Prepare for the worst – hope for the best.

The best defence is not to be attacked in the first place!

Lower the profile

Don’t make your client an easy touch. IR35 w...

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08th Apr 2008 14:32

HMRC incompetence
Brett - good for you. It's more of this type of expose that we all should be engaging in. Look at how the MP's have concealed their expense accounts until the recent BBC investigation. If more of us became "whistle blowers" in all walks of life, those in official positions would be more careful about their conduct.

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08th Apr 2008 14:28

IR35 Lottery results
Hi Bret

I have read what you say with interest. I am pleased for you that you won your case.

As I was involved with the case before I left HMR&C you will appreciate that my hands are tied by the confidentiality rules they impose, so unfortunately I can't discuss specific details as much as I would like to.

However, based upon the facts that are in the public domain, clearly both you and HMR&C believed their case was right. It appears that an impasse occurred and to settle the matter the case needed to be referred to an independent tribunal and on the day, you were successful in persuading the Commissioners to find in your favour.

Of course it is always better to ensure that you do not get picked up for review in the first place and that is what I am working on with Inspired Employer Solutions Ltd these days.

I do not think this forum is the place for personal comments, but if you would like to talk about the issues raised further, then please do not hesitate to contact me.
([email protected]).

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07th Apr 2008 17:28

HMRC incompetence
I am Bret Barnett of Datagate Services which you mention in part 1 of your article.

Quote: "HMRC target companies where the worker insists on paying a minimal salary and maximum dividends. If a more modest stance is taken, then the amounts at stake are reduced and so is the risk". This is true, yet is only half the story - the more money that is at stake, the more it becomes feasible for an uninsured "contractor" to employ professional help. Indeed in my case, I was not covered by insurance, but because I continued to work for the same end client during the five or so years of HMRC investigation prior to the hearing, the sum of money at stake became so large that it became feasible for me to employ representation.

In your first article regarding contradictory evidence you state that "HMRC called a former senior HR manager, but she was perceived as talking in generalities". As you have stated, you were personally responsible for the investigation of Datagate Services in your previous role as Bristol Area Status Inspector at HMRC. In 2004 (several years prior to the Special Commissioners hearing), I wrote to you personally on several occasions to inform you that the evidence from HR was incorrect. I specifically requested that you write to the end client to resolve this and other anomalies, yet you refused. You were also made aware that when a previous case at the Special Commissioners had been faced with contradictory evidence, far greater weight was given to that of the relevant Team Leader who was directly aware of the actual working practices. Despite all of this you decided to continue with the case, resulting ultimately in a significant waste of taxpayers money.

I am sure that the free publicity gained via this article for your new venture at "" will be of use, but for the sake of your clients I can only hope that you are more competent in your new role than you were whilst at HMRC.

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06th Mar 2008 14:25

IR35 Investigations

Unfortunately Steve is away from the office until next week and does not have access to a computer. I’ve spoken with him regarding your posting and he’s asked me to reply as follows.

During my previous life as a Status Inspector, there was no particular agenda to target the IT Industry. Any case regardless of sector that appeared to fall within IR35 was and I understand, continues to be targeted.

The reason why many feel the IT sector has borne the brunt is due in my opinion to fact that many of these particular people were able to organise themselves. With the help of professional advice and the gathering of a fighting fund, they were able to challenge the HMR&C position. The result being, if agreement could not be reached, then the only way HMR&C were able to establish whether their stance was correct or not, was to firstly take the case before the Commissioners and hence the high public profile.

There were many cases in other industry sectors where the people affected could not/did not organise themselves and in these cases the PSC either won or lost dependant upon the case presented – however none of these cases ever reached the public domain.

I in my previous life, I successfully argued and settled (with many of the recognised advisers) on IR35 cases outside of the IT sector - these cases however are never publicised.

The articles which I have prepared are not intended to cover the rights and wrongs of IR35 (of which in my opinion there are many). Instead they have been written to provide readers with an insight into the complex subject matter, particularly following the recent Sp Cases.

I could cover much more on this subject matter; however as you will appreciate, there are only so many hours in a day.


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06th Mar 2008 08:20

IR35 investigations
Steve, it has been my contention for some years that IR35 (and the MSC regulations and proposed "family business tax" regulations) are targetted solely at IT professionals, in much the same way that the building industry has been targetted by the CIS scheme.

Dawn Primarolo claimed that there were no statistics available to show who had been investigated and how much money had been raised under IR35. So what are your observations?

Has the majority of investigations in your experience been targetted at IT professionals? or can you give examples where non IT businesses have been targetted and found to be caught?

If my memory serves me correctly, all the case law has been regarding IT businesses. It will be interesting to hear your observations.

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04th Mar 2008 21:20

Thanks Steve
Steve, please acept my thanks for sharing your experince/insight with us.

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04th Mar 2008 13:21

Is insurance the answer?
Have just returned to the office (another IR35 client meeting), and I take on board your comments and empathise with your viewpoint.
However, I would like to make one thing perfectly clear; where clients contacts are obviously outside IR35, a minimal salary and dividends is quite rightly an option – naturally after considering the clients individual needs and objectives. Given that I am relatively new to this side of the fence, if we are confident the client is outside IR35 why the need to sell IR35 insurance?
I believe each IR35 client is different and should be treated as such. I believe the purpose as advisers is to look out for their best individual interests.
As my article mentioned, I have seen cases which are “grey”, but all too often many seek to rely on a “one size fits all” contract – these are the cases where there may be an IR35 challenge, particularly in light of the Dragonfly case where the Commissioner relied on the words of the end client as opposed to the terms of the written contract. It is in this area we need to look after our client’s best interest.
From experience, I believe that it is better to avoid an inspection by being off the main IR35 radar than to sell an insurance policy to the client on the basis that if they get caught the insurance will cover it. Whilst the insurance is likely to cover the financial cost (especially the professional fees!) and may even cover the tax and National Insurance, will it cover the interest and penalties?
Unfortunately, insurance will never cover the time, inconvenience, disruption or worry costs to the client and this is often overlooked. There are situations where insurance is in the best interest of the client – to mitigate potential future costs. However, going forward, as a result of Dragonfly it may be that insurance providers are likely to be much more careful about the IR35 cover they provide.

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By NeilW
03rd Mar 2008 15:11

An astonishing position
HMRC target companies where the worker insists on paying a minimal salary and maximum dividends. If a more modest stance is taken, then the amounts at stake are reduced and so is the risk.

I find that an astonishing position. "Increase the amount of tax you pay and HMRC will leave you alone". How much buys you peace of mind? £1000 extra tax, £2000, £10,000?

Surely a more appropriate response is to use the commercial facility that has been in place for centuries - insurance. Have your contract looked at by the appropriate insurance brokers and shift the tax risk to them, which should cost less than a £1000 for absolute certainty.

Every accountant dealing with IR35 clients should be offering them insurance. It's the only way to get certainty.


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