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High Court judgment could spell tax disaster for freelance contractors. The Professional Contractors Group (PCG), which represents the UK’s freelancers, has expressed its shock at the High Court’s judgment in the “Dragonfly” IR35 case.
PCG member Jon Bessell, the owner of Dragonfly Consultancy Ltd, has failed to overturn a tax demand for £99,000.
Speaking after the judgment was delivered, he said: “I am devasted by today’s news; not only does it affect my family and me, but all the other freelance professional consultants who are trying to earn an honest living."
He went on to say, "I was never an employee of the AA and I simply cannot understand how the High Court has reached its decision. It’s a travesty of justice. I would like to thank all those who have supported me through this case, in particular the Professional Contractors Group which has been superb throughout.”
PCG supported Mr Bessell in bringing his appeal because of the potential wider implications of the case.
PCG’s managing director John Brazie said, "this is a potentially massive blow to freelancers throughout the country. This case threatens the long-established defences against IR35; we will be looking at the judgment in very close detail to work out its full implications.”
In passing judgment the Honourable Mr Justice Henderson agreed with the original Special Commissioners’ conclusion that Bessell’s IR35 defence was weak.
Despite paying for training and equipment, Bessell’s business Dragonfly Consulting was considered an intermediary, with Bessell falling within IR35.
This ruling puts many contractors’ IR35 defences on the back foot and potentially might shift the emphasis of prior case law and rulings that supported the arguments put forward by Bessell’s defence team.
Lessons to be learnt
According to the PCG contractors can learn valuable lessons from the case.
Contractors must have the paperwork pinned down at every stage, including the contractual agreement between the agent and client, if this applies.
According to the contract with the client and agent, Bessell could supply a substitute but did not have an ‘unfettered right’, which means the client could decide whether to approve or reject any alternative consultant.
Even when the schedule was amended to presumably allow Dragonfly Consulting the right of substitution and alter the inference of control, High Court Judge Henderson ruled that the changes: “owed more to anxiety about the possible impact of …IR35…than to any real change in the position on the ground”.
Based on this ruling, it seems the case law on control has changed, a lesson that needs to be clearly understood for future contractor defences against IR35.
According to the Special Commissioner, and now confirmed by the ruling of this appeal, Bessell was controlled by the client. Judge Henderson pointed out in his ruling that this had been made clear in the first schedule between Dragonfly and the agency DPP, which that Bessell would be subject to the client’s “direct supervision and control”.
Witness evidence also corroborated the control of Bessell by AA project managers, because he could be ‘spot checked’; plus, specific managers ran more detailed checks to ensure Bessell’s work was of an acceptable standard.
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