IR35 Shock as 66 year old retired IT Contractor hit for 100 grand

IR35 Shock for IT Contractor
IR35 Shock for IT Contractor

IR35 Shock for JLJ Services Ltd

A retired contractr has had an IR35 shock.

The case was about whether John Spencer was an employee of Allianz Cornhill or whether he was in business on his own account.

He contracted through Highams Recruitment.

He contracted through his own company JLJ Services but there was no written contract with them for his services.

Court Decision

The court decided that he had been on business on his own account with his client for the first three years of his contract and an employee of Allianz for the past four years for tax purposes anyway.

So, what was the difference?

The difference was that he was hired to do individual projects for the first three years.

For the next four years he had a rolling contract. He worked on anything the company had rather than a specific project.

Alarm Bells for Contractors

Some contractors, who have been at companies for years, will hear alarm bells going off.

HMRC wanted over £200,000 from Jon Spencer. However, as he had already paid tax on it over the seven years, they settled on a figure of £141,000.

John worked at Allianz from 2000 to 2007.

He has now retired since then and was hoping to put his feet up before this bombshell.

Changed Contract

The tribunal judge reckoned his way of working changed around December 2003.

He reckoned that the actual working practices were far more important than the actual terms of the contract.

The verdict says ‘The sole question of principle for us, therefore, is whether, had Mr. Spencer performed his services for Allianz under a direct contract between himself and Allianz, he would have been treated as an employee or as an independent contractor’.

IR35 Shock – Difference in the Contracts

Contractors will be very interested to see what the main differences on the two periods were and in the two contracts.

According to the tribunal:-

The first period was for a contract of six months. He had two contract renewals of 2 months one of one month, three for 3 months and two for four months. He also had a 10-month contract.

Upgrade Systems

The contract clearly stated that the project was to ‘Upgrade Systems‘.

Most of the contract extensions named the project and the manager of the project.

However, from December onwards contract extensions were for 12 months at a time. Also, there were no project descriptions on the contracts.

There was a whole load of other things taken into account. The verdict goes on for some pages but the crucial determinations are as stated above.

It seems they offered him a permanent job at the end of 2003 but he declined. However, the company made it clear that they would like him to stay indefinitely. This didn‘t help him at all when it came to the tribunal.

Be Careful About IR35 Catching You

HMRC have not stated the figure they want. However, as their original figure wanted was £141,000, and the later 4 years of his 7 years were deemed to be caught by IR35, he may be stumping up close to a hundred grand.

That’s not a very nice retirement present for someone who must have been one of the earliest contractors.

Contractors still have to be very careful.

This IR35 shock for the retired contractors is yet another battle in the great war.