New IR35 Case

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In a recent employment rights case against HMRC, Susan Winchester, an independent contractor, successfully claimed for unpaid holiday pay of more than £4,000 which Ms Winchester claimed she was entitled to, in an out-of-court settlement. Ms Winchester was contracted as an agency worker and therefore entitled to employment rights; this has happened in the midst of recent talk that contractors should be entitled to employment rights if deemed to be within IR35.

New rules regarding IR35 in the public sector, known otherwise as ‘off-payroll’ workers, came into force on 6th April 2017. These affected contractors moving forward, with the responsibility of determining the IR35 status shifting to the public sector clients. Should a contractor be caught within IR35, they would have to join an agency payroll in order to be taxed accordingly, however would not receive the same employment rights as those who are regular employees.

Having been engaged by HMRC two years prior, Ms Winchester’s contract was then taken through the Check Employment Status for Tax tool (CEST) and effectively placed within IR35, meaning she was joined onto an agency’s payroll (Kinect Recruitment Ltd) and working as an agency worker. With this being the case, and new rules now in place, Ms Winchester argued that she was ultimately entitled to employment rights as an agency worker, and therefore entitled to unpaid holiday pay; these are the same entitlements any other employee of HMRC would have.

Should the case have gone through the final hearing and Ms Winchester have emerged with the win, this could perhaps have set a precedent for future HMRC employment cases, however with the case having been settled outside of court, it begs the question as to whether HMRC felt it would have hindered their progress to create reform in the private sector and continue with the current rules in place.

Ms Winchester commented to IPSE:

“For me, the case was never about money: it was about what’s right and wrong and not being bullied into a position because of a flawed tax law.

With IR35 reform in the private sector around the corner and seemingly inevitable, it was initially clear in HMRC’s consultation document that employment rights were not going to be considered as an important area in the scope of the consultation; given recent events, more contractors will now look to follow in the footsteps of

Ms Winchester and look to claim employment rights which they should rightfully be entitled to.

This has been a long-term issue, and as Ms Winchester also states:

“I know this isn’t the end of our fight against IR35 rules. Because, until the government realises how terrible this policy is for individuals working within this increasingly important business sector, nothing will really change for the better.”

HMRC will need to take this into account when announcing the decision over reform in the private sector, and amid Brexit uncertainty.

With the IR35 consultation drawing to a close, it’s vital the government carefully examines the wider implications of further changes, because reform – should it mirror the public sector – has the potential to impact the entire UK economy.

To move forward with IR35 reform in the private sector without considering a change to the rules to allow contractors to receive employment rights (if placed within IR35) would be breaking the government’s promise to support small businesses.


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