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​Usetech Ltd. vs Young 2004

Usetech Ltd. vs Young 2004
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IR35 Case Studies


Usetech Ltd vs Young (Inspector of Taxes) 2004

One of the earlier IR35 tribunal cases, the case of Usetech v Young is often used to demonstrate the impact that the upper level contract can have on an enquiry.

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The Appeal


Mr William Hood was a computer software specialist who provided his services via his company, Usetech Ltd, to ABB Vetco Gray (UK) Ltd via a technical recruitment agency, NES International Ltd, for 17 months from June 2000.

Following the initial demand by HMRC that Mr Hood was caught by the IR35 legislation, he appealed to the Special Commissioners, of which was dismissed, and then to the High Court of Justice.

Usetech Ltd had argued that IR35 did not apply because a right of substitution existed in his company’s contract with the agency and there was no obligation on the end client to provide him with work. Unfortunately, the lower level contract was a standard contract that the agency used when engaging individuals through one man service companies. Whilst it contained a substitution clause, this was not reflected in the upper level contract between NES and ABB.

The Special Commissioner had described the right of substitution as being largely illusory and that the hypothetical contract would not have contained a substitution provision. The High Court judge went a stage further by saying that if Mr Hood had raised the substitution issue in negotiation with ABB then the end client would not have entertained this.

The minimum that ABB had to provide and pay for under its contract with the agency was 37.5 hours. There was also a termination clause that required 7 days’ notice by either party. The judge concluded that these terms would have also been a feature of the hypothetical contract and therefore the mutuality requirement would be satisfied.

Ultimately, the appeal was dismissed, and Usetech Ltd was liable for the tax, NICs, and interest owed.

Upper Level Contracts


The 'upper-level contract' is the term used to refer to the contract between the recruitment agency and end client where the contractual chain involves an agency. The 'lower-level contract' is therefore used to reference the contract between the PSC and agency in this contractual chain.

As demonstrated by this case, upper level contracts can be of high importance. Discrepancies present in the upper contract can have a detrimental impact on a contractor's status during an enquiry, as they can show an alternative hypothetical contract which is more likely to be deemed as the true nature of the working practices.

Unfortunately, most contractors will never get sight of this contract and so cannot easily ascertain their status based on contracts. This is one reason why contractors should ensure that their contract always mirrors the actual working practices and is as robust as possible, to reduce the likelihood of the upper level contract coming into play, and of course, ensuring that the appropriate taxes are being paid.


The Company


About Us

Why Qdos?


Qdos Contractor are a leading authority on the IR35 legislation, having handled well over 1,500 IR35 enquiries on behalf of UK contractors since its introduction in 2000. Qdos have been at the forefront of the public sector changes, developing a compliance management process which has enabled over 30 agencies/end clients to minimise disruption, and thousands of contractors to receive an independent and fair assessment of their status. In addition, Qdos are one of the leading providers of specialist contractor services in the UK.


Our History


Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

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