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Nuclear power plant

IR35: Outstanding win for the taxpayer

1st Jun 2018
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A judgment providing another IR35 victory for the taxpayer has just emerged, although the case was heard at the First Tier Tribunal (FTT) over 18 months ago.

The case concerns Armitage Technical Design Services Ltd (ATDSL), the personal service company of Mr Armitage. John Hill represented Armitage at the hearing and both he and Armitage are happy for this case to be reported.

The case took around four years to reach the tribunal. Although the taxpayer and his advisers were convinced that the contracts were not within IR35, they didn’t want the case to drag on, so they offered to settle the tax and NIC due for the two in date years with no penalty.

But HMRC refused as it wanted a penalty for negligent conduct on the basis that the taxpayer had not discussed IR35 in sufficient detail with his accountant before the P35s were submitted.


Armitage is an electrical control and instrumentation designer who has worked in the nuclear industry for decades. He contracted through ATDSL and two different employment agencies to provide his services to Diamond Light Source Ltd (DLS).

HMRC asserted that the work Armitage performed over the four years 2009/10 to 2013/14 fell within IR35. During this period Armitage completed several separate projects for DLS and also worked for other customers.   


The judge examined various indications of employment and self-employment set down in case law and highlighted the following points:


DLS would accept a reasonably qualified substitute in the place of Armitage, but this was never tested in practice. The tribunal was satisfied that there was not an absolute requirement for Armitage to personally perform the tasks.


Armitage chose to work in Warrington rather than at the DLS headquarters in Didcot. He only visited the Didcot site once per project.

He worked to his own deadlines and wasn’t directly supervised by DLS staff. The judge concluded that Armitage was not subject to the same level of control as the DLS employees, which pointed toward self-employment.

In business on his own account

Although Armitage was paid an hourly rate, he made a note of the time he worked and was not subject to the electronic time management system which applied to DLS employees.

Armitage provided his own software and some of the computer equipment required for the project. He worked on other projects for other clients concurrently with the projects he was completing for DLS.

Part and parcel of the organisation

Armitage received none of the benefits provided to the DLS employees such as a locker for personal belongings, sick pay or holiday pay. He did not attend employee social functions or training events and was not included on the team-sheets. He was not part of the DLS organisation.

Mutuality of obligation

On the crucial point of mutuality of obligation (MOO) the judge said: “The mere offer and acceptance of a piece of work does not amount to mutuality of obligations in the context of employment status.” So in this case, the MOO factor was considered neutral.

Dave Chaplin, CEO of ContractorCalculator commented: “This is the second case contradicting HMRC's position on MOO, and further confirmation that omitting it from the CEST tool is a gross error in misjudgement."

Overall the judge concluded that on balance the contracts Armitage performed for DLS did not fall under IR35, and all tax determinations and penalties were cancelled.

Rule 35

This case was heard in public in Liverpool on 15 November 2016. A summary of findings of fact and reasons for the decision (“summary judgment”) was released to the parties on 27 January 2017. Either party could have applied for a full written judgment within 28 days under rule 35 of the tribunal rules, but they didn’t.

If a full judgment had been released it would have been published on the courts service website, but summary judgments are not published, which is why this case has been overlooked until now.  

How many other important tax cases have been decided but have not been published? If you have been involved in any, please let us know.

Replies (6)

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Dave Chaplin
By Dave Chaplin
01st Jun 2018 14:12

This was published on 27th Jan 2017, weeks before HMRC launched CEST, that has an inbuilt assumption that every contractor is automatically caught by sufficient mutuality of obligation to point to an employment relationship.

And yet, weeks before, a judge told them this was not the actual law.

And, then we have the recent Jensal case, that reaffirms again that their stance is wrong.

And then they were supposed to be releasing a document explaining why they think they are right, which they haven't.

But, don't worry, they've got it all worked out. Apparently 90% of people who should be inside IR35 don't adhere to it. Yet HMRC losing at least half the cases. Should be like shooting fish in a barrel for them.

Something doesn't quite add up here. It's almost as if they want the law to be something it isn't just to make things easier for them.

Thanks (3)
Replying to davechaplin:
By NeilW
04th Jun 2018 09:52

The problem with Mutuality of Obligation is the emergence of the 'gig' economy - where employees start to take on the characteristics of businesses as firms try to transfer risk. It all boils down to the time period over which the obligation is determined and that has never been decided in court.

HMRC, naturally, want the obligation period to be a day. So you are seen as offer and accepting work each day.

The trouble with that is that it conflicts with zero hours contracts, holiday pay legislation, working week hours and a whole load of other things that point to much larger obligation periods.

Quite why HMRC cling to the 19th century dock worker as their model I don't know, but it is a bit chilling.

Thanks (0)
01st Jun 2018 15:14

Keep up the fantastic work Dave. It's about time that other respected organisations took up the fight and began lobbying to get CEST abandoned. Surely the Lord Chancellor should be lobbied over this perverse attempt by HMRC to interpret the law to their advantage.

Thanks (1)
By EnglishRose
01st Jun 2018 18:04

A good decision.

Thanks (0)
By G Webber CTA
04th Jun 2018 10:53

Once again Judicial insight overcomes HMRC dogma.
It's hard to find a reason why HMRC wish to publish with some noise a winning case, but fail to want to advertise a losing one.

Aside from the Jensal case above, we also have 4 recent cases in which HMRC failed to meet the standard of proof required in issuing penalty notices and similar. We now see another loss for HMRC (which I can guarantee will not be counted in the "we win 80% of all cases" statistics).

TSC is presently holding an inquiry into HMRCs action in making and advancing enquiries and in how their actions have limited (or otherwise) evasion and avoidance. Given that we are at last seeing some independence from the judiciary, I hope that the using of taxpayer money to fund hopeless cases and especially ones in which they were offered and refused a fair settlement, will tell the MPs that they have a key Government agency that is either not fit for purpose or out of control. Either way, what we need is to reform of how HMRC should be accountable and how policy is made.

Thanks (2)
Replying to G Webber CTA:
By IrwinSchiff
04th Jun 2018 11:25

Good point, it's not just a win for the contractor and for common sense, but a loss for the taxpayer funded HMRC which continues to pursue cases they do not have any hope of winning. It should be mandatory for losing cases (including those with just 'summary judgment') to be included in independently audited results of HMRC win rates.

Thanks (1)