IR35 Insurance
When discussing IR35 Insurance it's difficult not to mention the now infamous "Dragonfly Case". It is the single most important example why IR35 Insurance should be considered essential for all Freelance and Contractors.
The Dragonfly case is well known amongst contractors and freelancers for the ￡99,000 tax bill that the contractor owed, as will as for what the case meant for other Contractors in the future. Dragonfly Consultancy Limited's director disputed that IT contracts in place to work with the AA were caught by IR3 The case was taken to a hearing of the Special Commissioner where it was dismissed by Commissioner Charles Hellier. It was concluded that Dragonfly's limited 'right of substitution' was not a pointer towards self-employment and the control exerted by the AA upon Dragonfly was a strong indicator of 'employment'.
Due to the wide-reaching IR35 implications of the case Dragonfly's decision to launch an appeal to the High Court was supported by the Professional Contractors Group. However, the case judge Mr Justice Henderson sided with the Commissioner Bessell and it was decided that Dragonfly's defence was weak. The case was subsequently dismissed as there was insufficient evidence for Dragonfly's contract work to fall outside the IR35 rules.
Implications for Contractors
1) The case involved a number of contracts with the same client,
cheap Evening Bags, starting before IR35 even became law. Later on, some 'IR35 friendly' clauses were inserted. This fact could imply that the new clauses were there solely to get around the IR35 rules.
2) Substitution: the agency-client contract contained no substitution clause at all. The substitution clauses in the contractor-agency contracts varied,
cheap laptop bags, but the lack of any unfettered right of substitution the agency-client contract was a very strong pointer towards Dragonfly being an 'employee' as per the employment status rules.
3) Control: Dragonfly's later contracts were amended to remove references to his need to comply with staff rules and regulations while on contract. This was seen by the judge as IR35 avoidance as Dragonfly's first two contracts made specific reference to him performing his work under the client's directionsupervision.
Contracts should reflect working practices
numerous tax and legal experts say that it is now more crucial than ever for contractors to ensure they use IR35 compliant contracts - and it is essential that such contracts reflect their true working practices. IR35 Insurance is also see as an imperative part of working as a contractor.
According to employment status experts,
silver Evening Bags, Bauer and Cottrell, the fundamental message from the Dragonfly case is that the contracts in the chain did not reflect the working practices and therefore the parties understanding of the reality of the relationship.
"IR35 concerns 'relevant engagements' which unfortunately means each individual contract and extension. You should have each contract reviewed together with the working practices. If a contract has been prolonged resulting in any changes to the services provided andor the working practices this will also need to be reviewed." - this remark relating to the fact that Dragonfly had a 'right of substitution' clause added to his contract at a later date.
It should also be pointed out that the two contracts at the heart of the Dragonfly case did not reflect each other. HMRC argued that even though the agency-contractor contract contained a substitution clause, the reality of the contract wouldn't allow this to happen as the client specifically required Dragonfly to work on project.
Significantly,
wedding Accessories Gloves, the agency-client contract did not contain a substitution clause at all.
Evidently, for total peace of mind as a Contractor facing the burden of a potential HMRC investigation,
Knee Length Cocktail Dresses, IR35 Insurance is essential.
Ian Ainslie
Lampwork Beads
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