After being soundly beaten by IT contractor, Richard Alcock, only a handful of days earlier in an IR35 Tribunal carrying over £240,000 in tax liability, news then landed last week that HMRC lost yet another case, this time at the hands of ITV presenter, Helen Fospero.
Ms Fospero, a regular presenter on TV shows, Daybreak and Lorraine, won her Tribunal after the Judge decided there was a sufficient absence of Mutuality of Obligation (MoO) in the contracts her company, Canal Street Productions, held with ITV.
Also factored in was that Ms Fospero worked with other clients simultaneously, which helped strengthen her case for belonging outside IR35 on various ITV contracts in the 2012/13 and 2013/14 tax years.
Together, these two factors demonstrated to the Judge that the presenter was indeed a genuine contractor. As a result, the £80,770 in National Insurance Contributions and income tax that HMRC was demanding from Ms Fospero does not need to be paid.
While any contractor successfully appealing an IR35 decision in a Tribunal is important, there are a number of reasons why Ms Fospero’s victory is particularly significant. With this in mind, and given there are less than six months to go until further IR35 reform is enforced, we’ve focused on what HMRC’s latest defeat means.
Similar to Richard Alcock’s IR35 win, Ms Fospero was deemed to be outside IR35 due to the fact that Mutuality of Obligation (MoO) wasn’t present in her engagements with ITV. In addition to showing the importance of MoO in IR35 compliance, this ruling also proves that CEST - HMRC’s controversial IR35 tool - can’t be trusted. This is because the taxman’s flawed IR35 technology works off the premise that MoO exists in every contract, regardless of the fact that in reality, it doesn’t.
While not a definitive indicator of an outside IR35 engagement, contractors who work with multiple clients simultaneously are better-placed to argue they are genuine than those who don’t.
In this case, the Tribunal Judge, Ashley Greenbank, referred to the fact that Ms Fospero had various clients, ran a genuine business and therefore wasn’t a ‘disguised employee.’ Mr Greenbank explained: “It seems to me that the agreements with ITV were just part of that wider business carried on by Ms Fospero through Canal Street, in which Ms Fospero undertook various types of presenting work.”
Granted, that HMRC struggles to understand the very legislation it created, enforces and insists on reforming might not come as surprise, but Helen Fospero’s successful appeal highlights this issue once again.
With IR35 changes approaching, the fact that HMRC itself cannot recognise if a contractor belongs inside or outside the rules is concerning. And, for businesses and agencies that are set to carry the IR35 liability from April 2020, this is even more reason for them to consider engaging the help of a credible IR35 specialist with a proven track record.
Despite suffering two IR35 Tribunal defeats in under seven days, it seems unlikely that HMRC will change its tack anytime soon. In recent years, the tax office has shown that it’s willing to target genuine contractors and sees IR35 compliance as an area in which it can raise tax revenue.
Therefore, being confident that you have correctly set IR35 status - either as a contractor or a client - is absolutely paramount. While contractors will soon lose the right to determine their own IR35 status with most clients, it’s important to note that HMRC can investigate engagements that date back six years.
Judging by the flurry of IR35 Tribunals in recent months, HMRC seems more than happy to go the distance in cases with a questionable reasonable prospect of success. With this in mind, IR35 insurance - which typically covers the cost of defence and any resulting tax liability, penalties and interest - could turn out to be incredibly important.
With over 25 years’ experience, Qdos is a specialist contractor tax, IR35 and insurance adviser and we review on average, over 2000 contracts every month. Since 2000 and the introduction of the IR35 legislation, we have handled more than 1,600 IR35 enquiries, saving UK contractors over £35million in tax.
Ask away! One of our team will get back to you!