February 04, 2011
A freelance engineer has finally succeeded in a longstanding, seven-year dispute with HMRC over his employment status.
The contractor worked, through his limited company MBF Design Services, as an engineer for Airbus. HMRC argued that he was using his contractor status as a sham to avoid tax. However, the employment tribunal ruled this week that his employment arrangement did in fact constitute that of an independent contractor and not an employee.
The deciding factor in the case was the lack of “mutuality of obligation”- meaning that Airbus did not have to provide the contractor with ongoing work and the contractor did not have to accept any work. The following facts also contributed to the decision:
· Airbus did not have to pay the contactor if circumstances, such as a computer system failure, meant that he could not work for them, whereas it continued to pay its employees in such circumstances; and
· Airbus could cancel the contractor’s contract at any time without notice.
The case illustrates the problems with the current IR35 legislation and its application to freelance contractors. The Office of Tax Simplification has plans to amend the rules, although this may not occur until a consultation has been carried out.
An employment solicitor can provide advice on the true status of workers and how their contracts should be worded and employment organised to ensure that they are legally compliant.
