All’s been quiet on the IR35 front recently. Since news of HMRC’s woeful enforcement record surfaced late last year, there’s been a relative dearth of IR35-related tomfoolery, instead most compliance related head-scratching has been directed towards the Agency Workers Regulations.

Of course, we all knew it wouldn’t stay this was for long. In mid December, just as everybody was starting to wind down for the Christmas break, a judge handed down a previously unheard-of IR35 ‘split decision’. At a Bristol Tax Tribunal presided over by Judge Howard Nolan, limited company contractor John Spencer of JLJ Services Ltd was deemed to have been both inside and outside IR35 during his time contracting with his client, Allianz. Up to 2003, Mr Spencer was deemed to be outside IR35, however after that point, the judgement deems, “there were various indications that the relationship did then change.”

The case was brought by HMRC and sought to recover £140,000 that Mr Spencer would have avoided in tax if he was ,in fact, a disguised employee. The decision means that before December 2003 Mr Spencer was legally an independent contractor, but after a point (which the judgement admits is ”not easy to define”) he was a disguised employee, and as such is liable to pay HMRC and tax that may have gone unpaid.

The case highlights the fact that, as HMRC have always said, IR35 status does indeed need to be made on a contract-by-contract basis, and cannot be influenced by other contracts with the same hirer. It is now clear this approach should also apply at the time of contract extension or renewal – and potentially even mid-contract should working conditions change.

This is the second potentially game-changing IR35 decision in the last few months. In mid-2011 a supreme court judge handed down a decision that effectively invalidated contracts if they did not accurately reflect the true working relationship between contractor and client. HMRC, the Government and the PCG are still holding meetings of their IR35 forum, aimed at improving the regulation and enforcement of the troublesome legislation, but it has yet to yield any concrete results.

Photo by Daniel Nugent – CC