A public sector IT contractor has won his appeal against Her Majesty's Revenue and Customs to pay £26,000 in back taxes under IR35 legislation.
Ian Wells won the case against the UK taxman over his working arrangement on the Department for Work and Pensions' Universal Credit project between 28 May 2012 and 4 April 2013.
Wells provided business analyst services through a personal service company, Jensal Software Limited, via an agency, Capita Resourcing Ltd.
HMRC said Wells' contract should fall within the scope of IR35 because his work was not casual, as he engaged almost continuously for over 10 months, and was obliged to turn up for work each day and worked the core hours of 8am/9am until 6pm.
The British tax collector consequently demanded Wells cough up income tax of £14,658 and National Insurance Contributions of £12,011, the figure he would have paid in taxes if he was effectively employed by the department.
The hearing took place between 4-6 October 2017. However, Judge Jennifer Dean yesterday ruled that all elements of Wells' contract pointed towards him being an independent contractor and not an employee.
Summing up, she said: "Looking at the overall picture and making a qualitative assessment I am satisfied that the relationship is consistent with a contract for services, not a contract of service.
"In reaching this decision I have made a value judgment on the features in this case; some of which are neutral and some which provide a more compelling indicator that the hypothetical contract would be one for services."
IR35 hit the headlines recently after a number of BBC presenters appealed their tax bills under the legislation, claiming they were pressured by the BBC to engage via personal service companies.
Last year the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. It hopes to raise £185m for 2017/18 by bringing public sector contractors within the scope of the legislation.
The case was brought to the First-Tier Tribunal Chamber represented by IR35 specialist, Qdos Contractor, which acted on behalf of Wells.
Seb Maley, Qdos Contractor CEO, said: "Despite HMRC implementing and enforcing the rules, this verdict shows they can't accurately assess a contractor's IR35 status.
"The government is serious about clamping down on what they believe to be non-compliance, but worryingly can't recognise whether a contractor belongs inside or outside IR35. That the individual was working on a government project simply adds to the irony.
"This case is further proof that IR35 needs simplifying, and HMRC must rethink its IR35 strategy completely. Clearly, this is no time to extend public sector changes to the private sector."
An HMRC spokesman said: "HMRC will carefully consider the outcome of the tribunal before making a decision on any future course of action." ®