Full Analysis of today’™s IR35 High Court Defeat


By Simon Juden of the Professional Contractors Group (PCG).

Key Points

The key points from the judgment in the Stutchbury case are as follows:

o Construction of the notional contract is a matter of mixed fact and law. This means that once the Commissioners have decided how to do it, it is quite hard to get the High Court to revisit that decision.

o While it is an ‘important contextual circumstance’, the ‘in business on own account’ test is not determinative in the assessment of IR35 status.

o The ‘arrangements’ to consider include all contracts in the chain and the detailed day to day performance of those contracts including matters not expressly stipulated in those contracts. However, arguments were not put forward on this point, it was accepted by both sides – and in practice the High Court has come to a decision on this case based solely on the contractor-agency contract and the ‘on-the-ground’ terms and conditions.

o The ‘starting point’ is the contractor-agency contract.

o Even when the right of substitution in a contract is not strong enough to decide the matter, the existence of any such right is a pointer towards self-employment

o The requirement for mutuality of obligation is whether the client is obliged to offer work and whether the worker is obliged to do the work. In particular if, on a given day, the client can say that there is no work for the contractor to do then there is insufficient mutuality of obligation for employment and IR35 cannot apply

o Having Professional Indemnity insurance is a pointer to outside IR35, contrary to Revenue assertions that because employees like surgeons have it, it is a neutral factor.

Because the issues of substitution, mutuality and control had not decided the matter, the judgment reverted to the same ‘balancing act’ approach used in Hall v Lorimer.

Factors Pointing to a Small Business

The factors that were in favour of a contract for services were:

o The fact that Stutchbury was in business on his own account

o Limited control of time at which and manner in which Stutchbury performed services

o The right of substitution (although too weak to be determinative, it is still a pointer the right way)

o The fact that Synaptek were responsible for Stutchbury‘s training and provision of computer facilities at own premises

o The fact that IPR was assigned by Stutchbury to the client

o The requirement for Stutchbury to have professional indemnity insurance

o The flexibility of hours worked in practice

o Use of Stutchbury ‘˜s own reference books

Factors Pointing to Employment

The factors that were in favour of a contract of service were:

o Minimum hours to be worked broadly equivalent to a normal working week

o The only financial risk borne by Mr Stutchbury was the insolvency of NESCO/EDS

o The duration of the contract was for a fixed period (of 6 months) rather than in relation to the completion of a particular project

o That Stutchbury worked alongside EDS employees and was sufficiently integrated with its workforce to have a line manager

o The requirement in clause 4.4 of the NESCO agreement that he comply with all EDS instructions

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