Inside story: The Novasoft IR35 appeal

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IT contractor Novak Brajkovic tells us how he took on HMRC single-handed and won his IR35 appeal. Brajkovic can trace the origins of the eight-year fight to win his IR35 appeal back to a tax training seminar. Through his company Novasoft, the self-employed web programmer had been working for Zeneca since 1998 as a specialist web programmer (note: the company subsequently changed its name to Avecia). The IR35 regulations came into effect in April 2000. When Novak started preparing his 2000-01 tax return in January 2002, his brother Nick – a practising accountant who also acted as Novasoft’s company secretary – agreed that he didn’t think the contract was caught by IR35 but suggested checking the contract terms with HMRC’s advice service.

“I’d been on a tax course when IR35 was quite new and they recommended running it by the Revenue,” explains Nick Brajkovic.

“He was very naive and said it should just be a quick process,” says Novak. “A couple of years of correspondence followed between me and the inspector, with them saying I was caught by IR35 and me denying it by quoting case law. My brother told me not to be frightened of the inspector. He tried to keep me calm and said it was just the inspector’s interpretation of his rules and authorities and not to be bullied or scared.”

During this period, Novak found David Smith’s book IR35 Defence Strategies very useful for constructing his arguments and pointing him at the relevant legal authorities. He also took heart that one of his co-workers who was employed on an identical contract had been through a similar process and been found to be outside IR35. The £49,000 notice
But his hopes were dashed in late 2005 when he received notices from HMRC demanding just under £50,000 in income tax and National Insurance due. “I thought I had not argued the points correctly. That’s when I contacted Qdos,” he says.

He also showed the contract to Dave Smith, then with Accountax. “It was pre-IR35, so he felt the case was weak, because the contract hadn’t changed and it mentioned me by name. That worried me,” says Brajkovic.

In July he reached the “point of no return” when he dispensed with the services of Qdos, but his brother suggested Novak conduct the case himself. Nick would attend the hearing and offer moral support, but says that his brother did 95% of the work. With hindsight he admits it might have been better to end the case sooner and at one point had asked his advisers to approach HMRC about a settlement without prejudice. “But I wasn’t going to put my hands up and say OK. For me it was mainly the principle. The fact that my co-contractor was cleared stuck in my throat. Each case turns on its facts, but there should be a consistency of approach.”

Less than a fortnight after he first heard of his appeal victory, Brajkovic learned that Tory shadow minister Mark Prisk had committed the party to a review of small company taxation and IR35. “I had a bittersweet reaction. For me it was just a huge relief knowing that the appeal and all the anxiety that went with it was over. Hopefully nobody will have to go through this again and this will be one case that works in favour of [IR35] being dropped. Maybe I’m dreaming, but it’s not something you’d wish on anyone.” Further reading
Contractor wins IR35 appeal after five years (it should be 8, says Brajkovic)


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About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.


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