The PCG are now advising contractors not to ask the Inland Revenue for an assessment as to whether their contract is caught by IR35 or not, unless advised to do so by professional advisers.
They are also advising contractors not to defend themselves as the only cases that the PCG have been involved in that have been lost have been where contractors started off by defending themselves.
The other piece of advice that the PCG are handing out is that they should go to the Special Commissioners for a hearing rather than to the General Commissioners. The Special Commissioners are legally trained people who lay out their reasons when giving a verdict. This means that, even if lost, that the verdict can be appealed against.
The General Commissioners are lay people, similar to local magistrates and are probably not legally trained. They may even be ex-employees of the Inland Revenue. They don‘t have to explain the reasons for their judgments and they often don‘t, meaning that, as in the Stutchbury High Court case, the judges cannot overturn them on a point of law.
Substitution Clause Crucial
The PCG are now firmly convinced that the Substitution clause is home-and-dry and that anyone with one in their contract is now outside IR35. The Inland Revenue tried to argue that it is an important indicator towards IR35 if it is never used.
This has been thrown out.
Although they tried to argue that Ford had 60 contractors with Substitution clauses in their contracts and none of them were ever used, and that pointed to it being a sham, this wasn‘t accepted. The Special Commissioner in both this and the Lime-IT case said that the burden of proof was with the IR to prove that the clause would never be invoked, and that just because it hadn‘t been, didn‘t mean to say that it wouldn‘t.
Also, the Inland Revenue tried to argue that if the Substitution clause was conditional, i.e. if the client has the option to turn down the Substitute, then that could make the contractor caught by IR35.
That was thrown our too.
The PCG now believe that if any contractor has a Substitution clause in their contract, even if the client can refuse to take the substitute, that this contract and this contractor are per se outside IR35 and will argue to the IR that they should all be excluded.
Other Crucial Features
The other two features which the PCG now believe takes contractors who have them outside IR35 are Control, and Mutuality of Obligation. If it can be argued that the client doesn‘t control the way the contractor does his or her work, then this would take them outside IR35.
Also, if the contractor can tell a client that he or she won‘t be in the next day for some reason, then there is no Mutuality of Obligation and that would take him or her outside IR35.
As extra evidence, and extra back up for the three crucial factors, there is the ‘˜part and parcel‘ argument, i.e. the argument as to whether the contractor is part and parcel of the client‘s business.
Contractors clearly are not.
The IR tried to prove they were by showing the many similarities between what is expected from an employee and a contractor. However, the Special Commissioner chose to see the differences in practices, down to the different coloured security badges, as being far more important.