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TERMS OF YOUR CONTRACT

TERMS OF YOUR CONTRACT

EMPLOYMENT STATUS - IR35

Contractors and IR35

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The responsibility lies with the director to ensure that his/her IR35 status is always clear. Matters such as control, financial risk, substitution, provision of equipment, right of dismissal and employee benefits need to be considered. The Dragonfly Consulting case is useful and illustrates the cost of getting IR35 wrong. The taxpayer was left with a tax bill of almost £100,000.

 

Despite the fact that equipment and training were paid for by Mr Bessell’s business, Dragonfly Consulting, and despite a contract which had a right of substitution Mr Justice Henderson decided that Bessell’s IR35 defense was weak. He commented "Overall I find nothing which points strongly to the conclusion that Mr Bessell would have been in business on his own account..”

Background to the Dragonfly Case - Jon Bessell was the director of Dragonfly Consulting Ltd and was working, through an employment agency, for the AA. He lost his appeal because Special Commissioner Charles Hellier ruled that he was ‘subject to the guidance of his team and team manager’ which was considered to be ‘a sufficient right of control. He had become ‘part and parcel’ of the organisation.

“[The SC] is therefore of the opinion that Mr Bessell was a ‘professional employee’.” John Bessell appealed his defeat in June 2008 in the High Court, where the RoS (Right of Substitution) was called into question. A right of substitution allows the contractor to send someone to work on their behalf if they are unable to attend the client site for any given reason.

Although the employment agency had included a RoS clause in the contract, HMRC claimed that the AA would be able to approve or reject a replacement for Mr Bessell and therefore there were not enough grounds for appeal. Mr Justice Henderson, presiding, questioned whether the RoS was simply ‘window dressing’ and if it was in-fact possible for a one-man band operation to exercise a RoS?

 

A final point - If you feel concerned about your IR35 status have your contract reviewed to make sure that you are operating legally.      >>> HMRC Employment Status Tool <<<

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