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Contractor wins landmark case that challenges IR35

24 September 2018

Contractor wins landmark case that challenges IR35An independent contractor has won her case to get holiday pay after IR35 tax rules forced her to work as an employee.

Earlier this year, Susan Winchester, a marketing and business development consultant, launched a claim in the Central London Employment Tribunal against HMRC, the agency Kinect Recruitment Ltd and three other parties in a contractual chain.

The claim was for £4,200 in unpaid holiday pay under the Agency Workers Regulations. Winchester's company, SJW Marketing Solutions Ltd, was originally engaged by HMRC in September 2016 to provide marketing services.

With the changes to off-payroll rules in the public sector about to come into force, HMRC ran the engagement through the Check Employment Status for Tax (CEST) tool and determined that IR35 applied. As a result, HMRC required Winchester to go onto an agency payroll, a decision that could not be challenged.

Susan Winchester claimed that, as an agency worker, she was now entitled to the same holiday benefits as employees of HMRC. As the tribunal was due to start, the parties agreed to settle the case for the full amount being claimed.

The landmark action was funded and backed by freelancer body IPSE. Chris Bryce, IPSE ceo, said: "Susan's case sends a very clear message to clients, that if you are going to treat contractors like workers, then you've got to give them worker entitlements … This is further proof that the IR35 changes have sown chaos and confusion since they were introduced in the public sector last year. What's even more extraordinary is that one of the culprits here is HMRC. If HMRC don't understand their obligations under a system they've created, how can they expect businesses to get it right?"

Susan Winchester said: "I would never have taken someone to court without a very good reason. But I just couldn't understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge."

She added: "While I'm happy the case has now concluded, I know this isn't the end of our fight against IR35 rules. Because, until the Government realises how terrible this policy is for individuals working within this increasingly important business sector, nothing will really change for the better."

Commenting on the case, Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA), said: "This case is just the tip of the iceberg and we are likely to see more fallout as contractors stand up for their rights. I hope this sends a clear message to policy-makers that they need to reconsider any move to roll out the reforms into the private sector."

Dave Chaplin, ceo and founder of ContractorCalculator, said: "This case is a game-changer for public sector contractors who may be eligible for similar substantial pay-outs, having been forced by their public sector clients into umbrella and agency arrangements following the introduction of the Off-Payroll tax."

Chaplin added: "If [the chancellor of the exchequer] presses ahead with the roll-out of the reforms into the private sector it will be catastrophic for business and the UK's flexible workforce. Small businesses in particular will be hard hit - they rely on flexible talent to tap into on demand - they cannot afford the additional costs that come with putting these workers onto the payroll."

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