Contractor wins against HMRC

IR35 Chaos

A contractor who had her employment status unilaterally changed by the government agency from ‘self-employed’ to ‘worker’, but then did not receive adequate holiday pay has successfully claimed thousands of pounds after taking a tribunal against HMRC.

The action, which was funded and backed by the Association of Independent Profes-sionals and the Self-Employed (IPSE), is a blow to the government’s chaotic and damag-ing IR35 policy. The case directly challenges controversial 2017 changes to off-payroll rules in the public sector. The case also exposes the questionable practice of contractors being deemed ‘employed for tax purposes’, then being denied worker rights and entitle-ments.

In this case, marketing and business development consultant, Susan Winchester, launched a claim in the Central London Employment Tribunal against HMRC, the agency Kinect Recruitment Ltd and three other parties in the contractual chain. The claim was for £4,200 in unpaid holiday pay under the Agency Workers Regulations. Ms Winchester’s company, SJW Marketing Solutions Ltd, was originally engaged by HMRC in September 2016 to provide marketing services. With the changes to the off-payroll rules in the public sector about to come into force, HMRC ran the engagement through the controversial Check Employment Status for Tax (CEST) tool and determined that IR35 applied. HMRC then required Ms Winchester to go onto an agency payroll, a decision that could not be challenged.
Ms Winchester claimed that as she was then effectively an agency worker under the reg-ulations, she was therefore entitled to a clear, transparent amount of holiday pay and to the same holiday entitlement as employees of HMRC. On the morning the tribunal was due to start, the parties agreed to settle the case for the full amount being claimed.

“When HMRC forced Susan onto an agency payroll, with no opportunity to appeal, they thought they could wash their hands clean of any repercussions,” comments Chris Bryce, IPSE CEO. “Susan’s case sends a very clear message to clients, that if you are going to treat contractors like workers, then you’ve got to give them worker entitlements.

“You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay,” he adds. “This is further proof that the IR35 changes have sown chaos and confu-sion since they were introduced in the public sector last year. What’s even more extraor-dinary is that one of the culprits here is HMRC. If HMRC don’t understand their obliga-tions under a system they’ve created, how can they expect businesses to get it right?”

Bryce adds that with Brexit hanging over the country, IPSE’s response to the govern-ment’s consultation on extending the changes to the private sector is that it is a disas-trous proposal. “We appeal to the government to harness the talent provided by the free-lance community and stop hounding them!”

Commenting on Susan Winchester’s result, Julia Kermode, chief executive of The Free-lancer & Contractor Services Association (FCSA) said: “This is a great result for contrac-tor Susan Winchester and fantastic news for all the other contractors who have been af-fected by the damaging off-payroll legislation.

“This landmark case illustrates just how complex employment status is and how unfair it is to tax contractors as employees without providing them with any of the accompanying rights and benefits that come with employment,” she says. “We warned HMRC about the impact the off-payroll legislation would have and now their chickens are coming home to roost; it is somewhat ironic too that Ms Winchester’s client was HMRC, the very govern-mental body that devised the legislation in the first instance. If HMRC does not under-stand its own policy and cannot implement it how can it expect any other public sector body or private firm to get it right.”

Kermode says the case is just the ‘tip of the iceberg’ and there is likely to be more fallout as contractors stand up for their rights.

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