Employment claims from contractors brought within IR35 expected after HMRC settlement

A freelance marketing and business development consultant has reached a settlement with HM Revenue & Customs (HMRC) after arguing that she should be entitled to holiday pay as she was considered to be a worker for tax purposes.

Susan Winchester had claimed £4,200 in holiday pay against HMRC after she was deemed to fall within the IR35 rules, which apply to freelancers working as if they are employees, but given none of the entitlements enjoyed by employees. She settled with HMRC on the morning of an Employment Tribunal.

The IR35 rules, which date back to April 2000, require that freelancers working through personal service companies for a third party and who would otherwise be employees, pay tax and national insurance as if they were employees.

Previously, individual contractors had to determine whether their work fell within IR35, but following a change to the rules in April 2017, public sector organisations were required to determine whether the freelancers they engage fall within IR35.

Susan Winchester said: “I’m a very fair person, with a strong moral compass. I would never have taken someone to court without a very good reason.

“But I just couldn’t understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge.”

Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE) – the organisation that funded Winchester’s case, added: “[Her] case sends a very clear message to clients, that if you are going to treat contactors like workers then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay.”

A spokesperson for HMRC said: “HMRC does not discuss identifiable individuals. In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself. HMRC was committed to ensuring that its approach to the changes as an engager was clear and transparent.”

Link: Contactor’s £4,000 holiday pay claim is the ‘tip of the iceberg’

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