Jon Bessell, 50% owner and sole director of Dragonfly
Consulting, carried out work for motoring organisation AA for three
years until 2003.
Bessell is an IT systems tester and worked almost exclusively
for AA in the three year period, providing his services as
Dragonfly Consulting via an agency for IT contractors, DPP.
A set of rules known as IR35 were introduced by Inland Revenue
in 2000 to ensure that individuals were not using a corporate
structure to avoid paying tax and national insurance as individual
employees.
Bessell was deemed by Inland Revenue to be an employee of the AA
according to the IR35 rules.
The Special Commissioner had looked at the fact that Bessell
operated under the control of AA, had only one other client who
provided only a little income and was "integrated into the AA's
business, and who had a role similar to that of a professional
employee".
Bessell appealed to the High Court, arguing that the
Commissioner had made legal errors in the assumptions made about
the notional contract imagined between Bessell and the AA; that the
intentions of both parties were not, as the Commissioner deemed
them, "irrelevant", and that there exists a status between being in
business and being an employee, and that is the state of being "a
worker".
The High Court found that the relationship was essentially that
of an employee and employer. Mr Justice Henderson found that
Bessell's work could not be substituted for another's; that the
control, appraisal and assessment of his work undertaken by AA
manager's was like that undertaken in relation to an employee; that
the parties' view of what they wanted the status to be was indeed
irrelevant; and that Bessell fell "on the employment side" of the
dividing line between employee and non-employee.
Mr Justice Henderson upheld the Special Commissioner's view that
Bessell should pay the tax and national insurance contributions he
would have been due to pay as an employee, which amount to
£99,000.
Bessell released a statement through contractors' body the
Professional Contractors' Group (PCG) saying he was "devastated" by
the ruling.
"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 said. "I was never an employee of the AA and I simply
cannot understand how the High Court has reached its decision."
PCG was formed specifically in reaction to the IR35 rules, which
are named after the number code of the Inland Revenue press release
that announced them and are now part of the Income Tax (Earnings
and Pensions) Act.
PCG managing director John Brazier said that the ruling had
potentially significant implications.
“This is a potentially massive blow to freelancers throughout
the country," he said. "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.”
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