Self-confessed \u2018IR35 addict\u2019 Dave Chaplin takes a tongue-incheek look at the bizarre world he\u2019s inhabited for the past 20
years.<\/p>\n\n\n\n
Do you know the subtle differences between the driver of a cement mixer, an exotic dancer, a housekeeper, a plumber, a car washer, Catholic school boarders, a hotel waiter, a football referee, Polish nationals or indeed a caravan park in South Wales? No, well unfortunately I do. Let me try and explain my world \u2013 IR35.<\/p>\n\n\n\n
Just over 20 years ago the then Labour Government dreamt up the idea that everyone should be assessing their relationships with their clients, to establish if really they are only \u2018employed for tax purposes\u2019 \u2013 which means tax should be paid like an employee, but without actually being an employee. Makes perfect sense, right?<\/p>\n\n\n\n
This came in under the banner of \u2018IR35\u2019 in April 2000, where contractors running limited companies had to ask themselves the status question, the result of which could see them losing 25% of their income, and they unsurprisingly concluded it didn\u2019t apply to them. Who could have guessed?<\/p>\n\n\n\n
HMRC tried to enforce this through the courts and found they could only win less than half of cases, and for a long period gave up even trying. Then, in 2016, HMRC thought it would be a good idea to get businesses to ask the status question instead and renamed the now-toxic brand of IR35 as \u2018Off-payroll Working\u2019. It was introduced in April 2017, all under the waving banner of \u201ctax fairness\u201d.<\/p>\n\n\n\n
This time it was the Conservative Party, tasked by the Treasury, to introduce more madness \u2013 whereby they had to convince everyone it was a good idea to oil the wheels of industry by making firms try to solve the equivalent of the Rubik’s Cube blindfolded every time they wanted to hire someone urgently. What could go wrong? So they gave 60,000 businesses, hiring over half-a-million contractors, the perilous task of conducting status determinations.<\/p>\n\n\n\n
But this status stuff is easy, right? One just has to examine the relationship between the worker and the firm they work for and determine if it\u2019s one of \u2018disguised employment\u2019 or not. Piece of cake \u2013 let me explain how you munch your way through it.<\/p>\n\n\n\n
Firstly, familiarise yourself with about 50 years of case law on the subject, and start by learning about a cement mixer driver from 1968 (Ready Mix Concrete).<\/p>\n\n\n\n
This case will tell you three areas that need to be examined to work out if someone is really an employee \u2013 but only for tax. Luckily for us, having gathered all the facts, we had a judge tell us (Hall v Lorimer 1994) that it would be useful to look at all of them.<\/p>\n\n\n\n
He explained that some facts in some instances are useful, but not in others, but maybe, but not so much, but either way, it should all be looked at. Can you feel the mist clearing yet?<\/p>\n\n\n\n
Thanks to the ruling on the cement mixer driver, one thing we do know for sure is that an employee must be a single person \u2013 ground-breaking, eh?<\/p>\n\n\n\n
Because if more than one person can show up to do the work, then it\u2019s not just one person, although this isn\u2019t now always the case. Trouble had brewed on the \u201cis it personal service?\u201d matter for almost 50 years, due to charging \u201carmies of lawyers\u201d (Kalwak 2007) writing words in contracts akin to \u201canyone can do this\u201d \u2013 which managed to circumvent the \u201cis this a single person\u201d problem.<\/p>\n\n\n\n
But then a car washer sponged over those rules (Autoclenz 2011) and, in the process, kickstarted a contractual interpretation revolution \u2013 where we started to question whether what everyone wrote down was really what everyone meant, especially if one party held more bargaining power than the other \u2013 do they ever not?<\/p>\n\n\n\n
Some caravan owners helped us on our journey a little (Arnold v Britton 2015) when we then learnt that actually what we wrote down, however imprudent to one party, might just be tough on the other. A couple of years later an insurance broker (Wood v Capita 2017) helped us work out that where there was ambiguity in the things we thought we had written down, that we could resolve this with the novel idea of looking at the facts, and what actually happened.<\/p>\n\n\n\n
This approach, where we could semi ignore the written words, and consider the reliable pipeline of facts, was then burst open by a plumber (Pimlico Plumbers 2018), whose case finally provided some much-needed clarity on whether more than one person was really just actually one person. Head hurting yet?<\/p>\n\n\n\n
Because you see, if the person tries to swap themselves out for someone else, it may not count, if they were unable to do the work, rather than unwilling to \u2013 well, of course, that\u2019s obvious, right?<\/p>\n\n\n\n
And assuming they could swap out if they were unable to do the work, it still might be an employment issue if the firm they are helping makes too many kinds of checks before letting them do the work.<\/p>\n\n\n\n
And if they can turn them away, for whatever reason, then sorry, game over.<\/p>\n\n\n\n
It could be perceived as employment, even though they could turn them away, but never actually do, because the right to do so is more important than what actually happens (Kalwak again). Phew \u2013 just the clarity we needed as we dance our way around these rules towards the altar of contractual (un)certainty.<\/p>\n\n\n\n
One such dancer, of the exotic kind (Quashie 2021), emerged from the darkness of gentlemen\u2019s club Stringfellows to come to the rescue and cast some light \u2013 she finally helped us all understand that if someone didn\u2019t pay someone else, then they weren\u2019t in a relationship \u2013 of the contractual kind, of course.<\/p>\n\n\n\n
The dancer conundrum was related to the second test we should consider, called mutuality of obligation, which was served up into the mix thanks to some temporary waiters in 1983 (O\u2019Kelly v Trusthouse Forte). This is the idea that promises are made between the masters and their servants, and many agree that this involves some sort of guarantee where there is an ongoing promise to offer and do work or get paid regardless \u2013 you know, like what happens when you hire an actual employee.<\/p>\n\n\n\n
But the one party who has disagreed for years on this is HMRC, who publicly claimed from their well-dug trench that it just meant the master paid the servant if they worked \u2013 which is normally called consideration in legal terms, not mutuality of obligation. I say publicly, because behind closed doors HMRC appears to roll the dice on this one.<\/p>\n\n\n\n
Variations I\u2019ve seen range from the \u2018policy view\u2019 that it\u2019s just consideration, which often appears in IR35 Opinion letters, which then differs from arguments made in tribunal Statements of Case, which then differs to ones in their skeleton arguments. And sometimes all these variations appear within the same case \u2013 I kid you not.<\/p>\n\n\n\n
Many of us, not necessarily football fans, took a four-year interest in the referees of the game, who had been trying to blow the whistle arguing this topic. It finally reached the Court of Appeal this year, where we hoped to finally get clarity. HMRC threw a \u20181\u2019 and went with their dodgy consideration argument, which was ironic considering that while waiting for the decision they also sent our defence team a skeleton argument having thrown a \u20182\u2019. HMRC lost the legal argument at the Court of Appeal, where the judges didn\u2019t give a final decision on the case, but they did tell us that the correct test was to look at \u201csufficient\u201d mutuality of obligation \u2013 without telling us what that was, except giving us pointers to there being something called the \u201cright kind\u201d. Thanks for that.<\/p>\n\n\n\n
And now, using some of those firm foundations \u2013 sigh \u2013 we can move onto the next test and start to look at whether the relationship contains enough control to make the single person a servant of their master. Because if they aren\u2019t, then they might not be a pretend employee.<\/p>\n\n\n\n
Controlling someone splits into four elements: how, what, where and when \u2013 why? I don\u2019t know personally, you\u2019ll have to ask the cement mixer guy. And we need to think about different factors and how strongly they might point towards or away from employment. Let\u2019s start with \u2018how\u2019, which is easy. We learnt in 2021 from a very unpleasant case (Various Claimants v Catholic Child-Welfare Society and others) that if the worker is a professional, one can turn a blind eye to the \u2018how\u2019 aspect when dealing with \u2018skilled people\u2019 who are left to do as they please. I suggest you take this as gospel because after reading the case, you can\u2019t unread it.<\/p>\n\n\n\n
As for the other factors, we have a useful tip based on a housekeeper visit to the tribunals (White v Troutbeck 2013) where we learnt that establishing whether someone could control someone, even if they actually didn\u2019t, but could if they wanted, was what we needed to focus on. Facts apparently aren\u2019t relevant here.<\/p>\n\n\n\n
Now, if you are thinking this is all sounding far too easy, it\u2019s time to introduce you to the wisdom that was introduced when an IT contractor took on the revenue in 2004 (Usetech v Young). What the programmer inspired the judge to conclude was that we should only open one eye to all the existing paperwork and use the other one to look at anything else that comes to hand. Then close both eyes and form an imaginary contract in our minds, and then apply the law to that. Stop laughing \u2013 the concept of the \u2018hypothetical contract\u2019 is accepted law. I mean it, stop chuckling, it\u2019s not funny.<\/p>\n\n\n\n
So, to recap all of the above, this is the process: words written down should mean what they say, and should not be interfered with really, and may just be tough on one person, except in instances where there is an imbalance of power, or some ambiguity, in which case maybe we should look at the facts, which might override the words.<\/p>\n\n\n\n
And when we look at the facts, we need to consider things that may or may not have happened but could have happened, and we need to see if enough of it has or could have happened. Once we\u2019ve done that, we close our eyes and dream about what an agreement might look like, and then apply some of those rules again, but not all of them.<\/p>\n\n\n\n
There is a final step \u2013 having formed in our minds what might be in a new contract, we then have to get our brushes out and now paint a picture of the contract on some canvas, and stand back from it, and work out if the picture means the person is an employee. For we are all artists now.<\/p>\n\n\n\n
Much of these cases took place in the employment tribunals, and I\u2019m a firm believer that false self-employment and denying people their rights should be eradicated. But the arguments developed in these cases are undermining the very fabric of the market economy, freedom and certainty of contract. This uncertainty is being leveraged by HMRC to collect more tax \u2013 but it\u2019s driving companies and people offshore into friendlier more certain jurisdictions, leaving less money in the UK to hire the very workers that should normally get rights.<\/p>\n\n\n\n
Hopefully, this explanation written purposefully against the backdrop of absurdity (did you get that one Uber fans?) of IR35 explains why I led a campaign for four years to try and stop this nonsense. But alas, that battle was lost, and we are where we are. Ironically, for me, it\u2019s party time in the IR35 world with firms seeking help with this stuff, and I\u2019m referred to as \u201cMr IR35\u201d.<\/p>\n\n\n\n
So, the sun is now shining on me \u2013 rock and roll! But if you do meet me at a party, I\u2019ll be the one rocking in the corner. Sweet IR35 dreams everyone.<\/p>\n\n\n\n
Self-confessed \u2018IR35 addict\u2019 Dave Chaplin takes a tongue-incheek look at the bizarre world he\u2019s inhabited for the past 20years. Do you know the subtle differences between the driver of a cement mixer, an exotic dancer, a housekeeper, a plumber, a car washer, Catholic school boarders, a hotel waiter, a football referee, Polish nationals or indeed […]<\/p>\n","protected":false},"author":1,"featured_media":951,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"class_list":{"0":"post-950","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-october-november-issue-2021"},"_links":{"self":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/950","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/comments?post=950"}],"version-history":[{"count":1,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/950\/revisions"}],"predecessor-version":[{"id":952,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/950\/revisions\/952"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/media\/951"}],"wp:attachment":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/media?parent=950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/categories?post=950"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/tags?post=950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\u2022 Dave Chaplin is CEO of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"