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IR35 ‘escape case’ knocked down by legal experts

Of course employment law and tax law are unrelated (eh?)

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The case of Martin O'Murphy vs Hewlett-Packard - which has been viewed by many as an effective escape to IR35 - will have little bearing on the widely-criticised tax legislation, legal experts have warned.

The unfair dismissal case, started in March this year and closely followed by Web site AccountingWeb, concerned IT contractor Martin O'Murphy and his relationship to HP, where he had worked for six years as a contractor.

A Tribunal Appeals ruling finally decided that Mr O'Murphy was not an employee of HP, leading many to believe it could be used to undermine the unpopular IR35 tax legislation. However, Baker & McKenzie employment partner Sarah Gregory and legal expert Rebecca Seeley Harris (who frequently covers IR35), have both dismissed its importance, stating that employment law and tax law are two very different beasts and that the definition of employment in one need not affect the definition in the other.

Gregory was quoted on AccountingWeb as saying the case "was merely saying that the contractor was not an employee of HP, but such contractors could still fall foul of the IR35 rules because they would be classed as employees under those rules and their own service company would then be responsible for deducting income tax."

Seeley Harris argued for the different approach in different areas of law, saying they maintain "the flexibility of the law which, when it goes against you seems to be a travesty but, when it goes in your favour appears to be justice". That the Tribunal is also fairly low down on the court hierachy, whereas IR35 has been debated in the High Court, also makes the case less significant than first thought.

The relationship between contractor and company forms the basis of the controversial IR35 tax legislation, which many in the industry say is unfairly disadvantaging them and is evidence that the UK government doesn't understand the knowledge economy.

Mr O'Murphy hired himself through his own company to an agency which then had a service contract with Hewlett Packard. HP terminated its contract with the agency abruptly in 2000. A tribunal initially decided Mr O'Murphy was an employee but this was overturned during an appeal, which said he wasn't.

If you want to know more, check out AccountingWeb's latest story here.

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