Construction worker wins IR35 tax appeal
04 April 2018
In the second significant judgement this year on IR35 intermediaries legislation, a ruling by HMRC has been overturned.
The case MDCM LTD v HMRC concerns company of which Mr Daniels and his wife are the directors and employees. The business consists of providing construction management services to construction companies.
Mr Daniels set up MDCM LTD in 2004 to escape working for a large company and now provides construction services management services, including night shift management.
Mr Daniels explained the nature of his work. Many construction companies only employ a limited number of staff to keep down overheads. When there is demand for work on a specific project the company will hire the additional staff for the duration of the project. On some construction contracts, particularly in London with tenanted buildings occupied during the day who have a right to quiet occupation, the work needs to carry on at night, hence the need for a night shift manager. The night shift manager, as with a day manager, is responsible for the site including the works done by subcontractors, co-ordination of suppliers, safety issues and other matters associated with overall site supervision.
This appeal concerns the contract with Solutions and STL but as background, the tribunal was provided with copies of four other contracts between the appellant and Solutions in addition to the contract that related to the STL engagement but no contracts between Solutions and STL or any other construction companies. The terms on which the appellant contracted with STL were reasonably standard.
The ruling laid out a hypothetical contract from their findings, summarised as follows
- Mr Daniels is not controlled any more than any other contractor and could refuse to work on another site
- There was a contract for personal services as Mr Daniels could not provide a substitute to STL (even if Solutions contract said he could)
- Mr Daniels was paid £310 a day and had to pay his own travel, hotel and other expenses
- Mr Daniels took no other financial risks
- There was no requirement on either party to give notice to terminate or entitlement to severance pay or pay in lieu
- STL provided safety equipment to Mr Daniels
- Mr Daniels was not integrated into the STL business
The Tribunal judge ruling the case said:
“We do not accept HMRC’s arguments about control but do agree that the requirement for personal services and lack of financial risk point to an employment relationship.
However, we find that the nature of the payment arrangements, a flat rate per day with no notice period and no entitlement to any employee benefits are inconsistent with employment. Further, Mr Daniels was not treated as an employee.
On balance we find that under the hypothetical contract required by the Intermediaries Legislation Mr Daniels would not be an employment contract and so this appeal is allowed.”
The detail of this second significant ruling this year, can be read here - MDCM LTD v HMRC.
In February this year Christa Ackroyd, a former co-host of the regional Look North programme on BBC One, lost her IR35 appeal. HMRC said that she should have paid the same level of tax as a BBC employee and was ordered to pay back £419,151.
Many BBC presenters are under investigation for alleged tax avoidance by using personal service companies to register as self-employed thereby minimising their tax bill.