In a change of fortune for the ‘little’ contractor, a rare victory was welcomed in a recent case against HMRC (MDCM Ltd v Revenue & Customs). The success came on appeal by a construction contractor, Mark Daniels, overturning an HMRC decision in the First Tier Tribunal.
In 2016, HMRC had previously determined that a contract for the provision of construction services by MDCM Ltd in the tax years 2012/13 and 2013/14 should have been caught by IR35, and that MDCM Ltd should be liable to pay PAYE and NIC.
However, MDCM Ltd successfully appealed the decision, with the First Tier Tribunal finding that the engagement was correctly categorised as one of self-employment, and that, contrary to HMRC’s determination, MDCM Ltd’s Mark Daniels should not have been treated as an employee.
One of the key factors used to determine Mr. Daniels’ status as a contractor, rather than an employee, was that he was not entitled to receive any employment benefits like holiday pay, sick leave, compensation for travel expenses, or a notice period. Another important element was that of ‘control’. HMRC argued that the end user controlled Mr. Daniels because they specified the structure by which the work had to be done. However, the First Tier Tribunal held that this was not evidence of Mr. Daniels’ employee status, as working within a clear agreed structure is a common condition of working contracts between a contractor and a client.
What can we learn from this?
Well, not very much really. It is, however, becoming ever more apparent that the IR35 rules are too complex in nature and thus very difficult to be applied consistently with any certainty. While, in this instance, MDCM Ltd emerged the victor, on another given day, perhaps the facts would have been interpreted differently. What we can take from this, without doubt, is that the decisions of HMRC should not always be taken as final and that they can be challenged successfully. Undoubtedly, there will be many more appeals from contractors with similar cases, and hopefully these will clarify the rules over time.