A tribunal has ruled in favour of a self-employed IT analyst and programmer who appealed against HMRC notices, which had said he was subject to IR35 legislation.
The legislation, which came into force on 6 April 2000, allows HMRC to tax IT contractors employed by a business through an intermediary as if they were direct employees of the business. Prior to this, an individual could pay lower National Insurance and Pay As You Earn tax if they provided their services through an intermediary and were paid with dividends rather than a salary.
However, a recent judgement, heard at a tax tribunal in Manchester, has upheld the appeal of Novak Brajkovic, IT analyst and director of his company Novasoft Limited, in a case that the tribunal described as “borderline”.
Winning his appeal meant that Brajkovic avoided having to make PAYE, NIC and interest payments between 2000 and 2002. During this period, Brajkovic was providing his IT services via Novasoft to a bio-tech client, Avecia.
HMRC served formal notices to Novasoft on 13 June 2005 under the Income Tax (PAYE) Regulations 2003 and the Social Security Act 1999, for the period 6 April 2000 to 13 December 2002. It argued that the terms of Brajkovic’s contract with Avecia, where he worked on-site, was effectively equal to those of a direct, full-time employee of Avecia. It therefore decided that Brajkovic was liable to be taxed as if he was a direct employee.
However, the tribunal reached a number of conclusions that resulted in Brajkovic being ruled as self-employed, and therefore exempt from IR35. The conclusions included the fact that Brajkovic he had no rights to any typical employee benefits or statutory protection, and the fact that he was able to take on other clients that did not conflict with the work he did for Avecia.
Tribunal Judge Peter Kempster concluded: “We consider that the overall picture painted is one of a contract of self-employment.”
He added: “An ‘individual detail’ in the picture is that, as we have found, Mr Brajkovic would not have been permitted to supply a substitute to perform the work. That could be an important detail, but in the particular situation of Novasoft and taking the picture as a whole, that detail does not disturb the overall impression we have formed of the notional contract [between Brajkovic and Avecia].”
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