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.
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.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.