Freelancer’s relief at Court of Appeal ruling

HMRC has lost an appeal on one of its main grounds for contesting an IR35 ruling at the Court of Appeal today.

The ruling could have significant implications for freelancers who were worried that HMRC was seeking to narrow the scope for what counts as freelance work rather than disguised employment.

IR35 is tax legislation which purports to clarify if someone is self employed or avoiding tax by wrongly claiming self-employed status. It has proven deeply controversial with much criticism over the way it has been implemented and interpreted.

Today’s Court of Appeal ruling involved tv presenter Kaye Adams. While she did not win outright and the case has been referred back to a lower tribunal for a final decision, the Court of Appeal rejected HMRC’s primary reason for appealing the case. HMRC contended that being in business on one’s own account was not highly relevant and should be given little weight when tax status is evaluated.

The ruling means that HMRC will need to update their IR35 guidance and revisit their existing IR35 litigation against freelancers.

Dave Chaplin, CEO of compliance firm IR35 Shield, said: “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. 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.

“This 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.”

Kaye Adams said: “I am very 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.

“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 HMRCs 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.”

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