Contractor Loses crucial IR35 High Court case – Implications for all Contractors

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The Verdict

Justice Hart today (Friday) gave his verdict in the Gordon Stutchbury versus Inland Revenue case. He ruled in favour of the Inland Revenue. He didn‘t even send it back to the General Commissioners.

The crucial thing here, was that he was listening to an appeal against the verdict of the General Commissioners, rather than making a ruling on the case itself. He ruled that he could see no reason to overturn the verdict on legal grounds.

Costs were awarded to the Inland Revenue against Gordon and his backers, the Professional Contractors Group. They have 14 days to lodge an appeal against the verdict.

The Lessons

It will remain to be seen what the lessons are for the future. If this is a technical verdict, i.e. that the initial verdict could not be overruled, then the lesson is that contractors should not defend themselves at the General Commissioners, as Gordon did. Once you‘ve been ruled against, then, as this case shows, it is hard to win the appeal.

The PCG and their partners also advise contractors to go to the Special Commissioners as they are more senior, whereas the General Commissioners are more like local magistrates.

When the full decision is handed down, the main point of interest, as far as contractors are concerned, is to see if Justice Hart has made any recommendations as to the law‘s thinking on what constitutes a business and what constitutes a ‘˜disguised employee.

The Background

Gordon had three clients at one time, although the Benefits Agency was the main one. At the beginning, all three contracts were deemed to be outside IR35. Half way through his contract, the Benefits Agency outsourced to EDS.

There was no change to Gordon‘s contract, and no change to his duties or tasks, or even his reporting structure.

Gordon actually paid up and then appealed.

However, Justice Hart has now ruled that the Inland Revenue and the General Commissioner were not wrong (at least legally) in coming to the decision that the second half of his contract with the Benefits Agency / EDS came under IR35.

This looks like a major blow to IT contractors. Let‘s hope that there is something in the detail of the verdict that will help them.

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