A contractor has been given an extraordinary verdict of being both outside and inside IR35 at one single workplace.
John Spencer had been working through his limited company JLJ, supplying services to a firm called Allianz for seven years when he came under fire from HMRC, despite a 17 year history trading as a freelance consultant.
The HMRC review maintained that the IT expert was inside IR35 throughout the seven years and concluded that he owed £141,000 in unpaid income tax, National Insurance Contributions and penalties.
Spencer appealed and was the subject of a Bristol Tax Tribunal which ruled that the contractor had been outside IR35 for the first three years of the contract but not for the four subsequent years, making this the first-ever IR35 split decision.
The Judge ruled that for the first three years of his work with the firm, Spencer had not been inside IR35. However, the nature of his relationship with the company then altered and he took on the characteristics of an employee. Despite his decision about the change in services, the judge agreed that it was difficult to define the exact point at which the contractor’s role changed.
The ruling means that Spencer only has to pay half of the £141,000 he would have been forced to part with had HMRC’s case been upheld. However, according to Spencer the case has highlighted huge inconsistencies in the application of IR35 and has also emphasised the legal system’s lack of knowledge about contracting and how contractors work.
There was hope for those impacted by IR35 last week when the Prime Minister hinted at the introduction of a General Anti-Avoidance Rule to tackle tax avoidance, which would render IR35 obsolete.