Details emerge of crowdfunded legal challenge to IR35 reform
by Alan Little
A contracting IT professional who is co-coordinating a crowdfunded legal challenge to controversial new IR35 reforms has warned that HMRC may face court action for preventing limited company contractors from fulfilling their business directorship responsibilities due to the legislative changes.
IT contractor Mike Gibson, speaking to Computer Weekly journalist Caroline Donnelly, cited this as one example of the kind of legal challenge that the Revenue may face over its enforcement of the rebooted IR35 rules.
Mr Gibson and several others are in the midst of crowdfunding a prospective IR35-related legal challenge against HMRC. The group has already exceeded its early 30-day fundraising target of £10,500 to finance the challenge. This money will help pay for a barrister who will determine the optimal grounds for successful court action against the Revenue.
The example provided by Mr Gibson would apply where the public sector engagements of independent contracting professionals have been wrongly classified as within IR35. In such a scenario, HMRC could be accused of barring limited company contractors from performing their directorship obligations as laid out in their companies’ Articles of Association.
Mr Gibson explained: “The Articles of Association describe how I’ll run the business and describe what it will do, and IR35 frustrates me from doing that because it tells me I’m not allowed to be a company director; I’ve got to be an employee.
“The question is, are [HMRC] frustrating my ability to be a director of a company that is legally constituted under English law through their implementation of IR35?”
This, however, is but one of several directions that the IR35-related legal action could take. Another option could be a challenge to the Revenue’s online Employment Status Service (ESS) tool, which HMRC urges public sector bodies (PSBs) to use for determining the tax status of their contractors. This tool has been shown to be highly unreliable: recent research by ContractorCalculator found that when 21 historic IR35 court cases were fed through the ESS, it yielded incorrect verdicts more than a third of the time. Mr Gibson noted that the tool has been widely discredited as “unfit for purpose.”
He regretted that contracting professionals engaged by PSBs felt forced to go to court to redress the “iniquity” of IR35 due to HMRC’s intransigence. He called on the Revenue to “drop the drawbridge and chat this through” to find a solution that was fair and equitable, as the current arrangement certainly isn’t.
The IR35 reforms, he said, are out of kilter with an increasingly flexible, gig-like economy.
HMRC responded by insisting that “two people doing the same job should pay the same taxes.”
The drawbridge appears to be firmly up at this stage.