Executive Grapevine | Executive Grapevine International Ltd

"How much longer can HMRC bury its head in the sand?"

The case for employment rights for those inside IR35 grows...

Earlier this year, a contractor successfully challenged HMRC for more than £4,000 in holiday pay after the tax office deemed her to be an employee, sparking calls for contractors to get more employment rights.

The freelancer, who worked as a business development consultant, scooped the payout after HMRC used its controversial CEST online tool to wrongly determine her tax status.

The CEST tool decided that in her case – her Limited firm having been contracted by HMRC itself – IR35 applied, forcing her onto an agency payroll.

When taking her case to the legal system, the contractor said that because she had been forced to become an agency worker, she was entitled to holiday pay.

HMRC have won only 10% of IR35 cases over the last decade – ContractCalculator

Seb Maley, CEO at IR35 specialist Qdos Contractor, added that the need for the Government to issue employment rights for workers operating inside IR35 has never been greater following this case.

He said: “This case sets a huge precedent, showing that individuals taxed as workers and not as contractors deserve employment rights. It could well be the catalyst for many more cases like this.

“Following IR35 reform in the public sector, thousands of contractors have been wrongly placed inside IR35, which can cost them up to 30% of their income - but still they do not receive employment rights. Frankly it’s an injustice and a situation that has to be resolved.


“This isn’t the first time where a contractor has battled HMRC and won. And as things stand, it won’t be the last. Only recently, Qdos Contractor successfully helped an individual who worked at HMRC through an investigation, with HMRC once again showing its lack of awareness when it comes to IR35 - the very legislation it created.

“With further IR35 reform under consideration, this is a worrying situation. HMRC needs to wake up to the fact that individuals paying taxes like an employee must be offered rights. Given this is a case in which HMRC is directly involved in yet again, you wonder how much longer it can bury its head in the sand when it comes to this issue.”

Chris Bryce, Chief Executive of Association of Independent Professionals and the Self Employed, added: “If HMRC don't understand their obligations under a system they've created, how can they expect businesses to get it right? You can't just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay."