Empowering the Freelance Economy

IR35 litigation against freelancers set to change

“My greatest concern is that the financial and emotional cost of this flawed IR35 legislation falls on the private citizen." - says Kay Adams; Photo Source: @kayeadams Twitter
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A freelancer’s career should be considered in its entirety when determining status under IR35 legislation, it has been declared in a Court of Appeal.

The decision came following a legal case, HMRC v Atholl House, involving presenter Kaye Adams. HMRC lost on its primary ground of appeal, signalling a major blow to HMRC’s longstanding view on how IR35 status should be determined.

The legal principles clarified by the Court are a significant victory for freelancers in business on their own account. HMRC will now need to update their IR35 guidance and revisit their existing IR35 litigation against freelancers.

HMRC contended that being in business on one’s own account was not highly relevant and should be given little weight during a status evaluation. The Court of Appeal unanimously rejected this interpretation of the law by HMRC. However, the secondary ground by HMRC succeeded, resulting in the case being remitted back to the Upper-tribunal for final consideration.

Inequality of arms

Kaye Adams said she was encouraged that the Court of Appeal has confirmed that a freelancer’s career should be considered in its entirety when considering its status under the IR35 legislation.

“Many of my fellow freelancers will be enormously cheered by this conclusion,” said Adams in a ContractorCalculator report.

She continued: “My greatest concern is that the financial and emotional cost of this flawed IR35 legislation falls on the private citizen. Two tribunals have already found in my favour and yet I am being placed back on the punitively expensive legal merry-go-round.”

“The costs of defending myself now far outweigh the amount of tax that HMRC claim is at stake. Unlike HMRC, the hundreds of other freelancers under HMRC’s spotlight do not have the bottomless pit of the public purse to dig into, and this inequality of arms is one reason many are choosing not to appeal.

“This dispute has already been the source of considerable anxiety in my life for eight years and I sincerely hope the fourth tribunal will be the final one.”

Kaye Adams

Has HMRC’s narrow approach finally backfired?

“HMRC’s primary ground of appeal sought to radically change the law around employment status and force IR35 status determinations away from the written statute and down a narrow path,” said Dave Chaplin, CEO of compliance firm IR35 Shield who attended the tribunal commented specifically on the Atholl House case.

“Such a narrow legal interpretation would have inadvertently resulted in vast numbers of freelancers being categorised as employed for tax purposes, despite being in business on their own account,” said Chaplin.

Dave Chaplin, CEO of IR35 Shield

The IR35 expert said the “binding decision” by the Court of Appeal is a significant blow to HMRC’s longstanding and contentious interpretation of employment status law, which will need to be revised, along with HMRC’s various guidance products, including the Check Employment Status for Tax (CEST) tool.

“The ruling also has wider implications, especially with those who are portfolio earners. HMRC will also need to reconsider its approach in current compliance action and litigation around cases involving these types of workers, particularly in the media sector,” said Chaplin.

The Atholl House case was first heard and successfully appealed by Atholl House at the First-tier tribunal in March 2019. HMRC’s appeal to the Upper-tribunal in November 2019 also failed, resulting in HMRC then appealing to the Court of Appeal, which was heard on 9th April 2022.

Atholl House Decision:

https://caselaw.nationalarchives.gov.uk/ewca/civ/2022/501

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