A Win for the Taxpayer Over HMRC’s IR35 Guidance


A Court has questioned HMRC’s guidance on IR35, provoking calls for the Government to review the legislation.

The question of whether someone is considered to be an employee or self-employed worker is again making headlines. The current law setting this out, known as IR35, has caused much debate since it was introduced in 2000.

The Government originally introduced the IR35 rules as a means to tackle tax avoidance and to catch those who would have been classed as employees in the absence of certain structures to avoid being considered as such. IR35 deems those people to be the employees of the company who they provide their services or skills for, regardless of any other contract being in place. As a result they will be taxed as employees.

HMRC has offered further guidance as to when a person is more likely to be treated as an employee for tax purposes or as a self-employed worker. This includes, but is not limited to, where that person receives the same benefits as employees of the company, or when the company exercises a level of control over that person’s working day or hours of work.

HMRC’s guidance on IR35 states that an arrangement is most likely to be considered as an employment relationship where there is an obligation on the part of the worker to provide their work or skill and an obligation on the part of the company to pay the worker for that service. This is referred to as the “Mutuality of Obligation”.

However, HMRC have faced criticism in relation to their interpretation of the IR35 rules. The case Armitage Technical Design Services (ATDS) Ltd v HMRC, which was decided back in January this year but has only been reported on, raised a number of concerns with HMRC’s guidance and their interpretation of Mutuality of Obligation.

The Judge confirmed that HMRC’s guidance in this regard was incorrect because if their interpretation of the Mutuality of Obligation were applied to every contract then all contracts for services would be deemed to be employment contracts. He went on to state that “the mere offer and acceptance of a piece of work does not amount to mutuality of obligation in the context of employment status”.

There were many other points in which the Judge ruled against HMRC in this case and he called their guidance into question.

Since HMRC are struggling with the interpretation of IR35, pressure is mounting on the Government to revisit the legislation. With this in mind the Government has started a further consultation to attempt to clarify the rules.


The consultation closes on 10th August 2018 and the first indications of the results should be released soon afterwards. Hopefully this will result in much needed clarification and updated guidance. If you need further advice please contact our Corporate Law Department for more information – call us or email by using the form to the right.The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of June 2018.


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