Contractor loses crucial IR35 High Court case

Implications for all contractors

On March 28, Justice Hart gave his verdict in the Gordon Stutchbury versus Inland Revenue case. He ruled in favour of the Inland Revenue. He didn't even send it back to the General Commissioners.

The crucial thing here, was that he was listening to an appeal against the verdict of the General Commissioners, rather than making a ruling on the case itself. He ruled that he could see no reason to overturn the verdict on legal grounds.

Costs were awarded to the Inland Revenue against Gordon and his backers, the Professional Contractors Group. They have 14 days to lodge an appeal against the verdict.

The Reasons

This was a technical verdict and the judge ruled that he couldn't overturn the General Commissioner.

It was a bonus though that the judge referred to the factors that would tend to make a court think that a contractor such as Gordon was in business on his own account and therefore outside IR35, and those that tended to point to him being an employee of EDS.

He gave eight factors for and five against. This will be very useful, as contractors are far more flexible than the Inland Revenue. It will make it much easier for contractors to shape their contracts and their working practices towards making them outside IR35.

In fact the Professional Contractors Group is working with ATSCO, IT recruitment agency trade group, to create a standard IR35-free contract for the profession. Information that Justice Hart gave will help to shape this.

The Lessons

Contractors should not defend themselves when the case goes to the Commissioners. It is too hard to get the verdict overturned - even when being funded by the PCG.

The PCG and their partners also advise contractors to go to the Special Commissioners as they are more senior, whereas the General Commissioners are more like local magistrates.

The Background

Gordon Stutchbury had three clients at one time, although the Benefits Agency was the main one. At the beginning, all three contracts were deemed to be outside IR35. Halfway through his contract, the Benefits Agency outsourced to EDS.

There was no change to Gordon's contract, and no change to his duties or tasks, or even his reporting structure. Gordon actually paid up and then appealed.

However, Justice Hart has now ruled that the Inland Revenue and the General Commissioner were not wrong (at least legally) in coming to the decision that the second half of his contract with the Benefits Agency / EDS came under IR35.

This looks like a major blow to IT contractors. Let’s hope that there is enough in the detail of the verdict that will help them.

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