Nichola Ross Martin's Tax Consultancy

A page in HMRC’s Employment Status manual on workers and IR35 might cause some problems for the unwary as it appars to directly conflict with advice given on employment law and also the Direct Gov website.

In the IR35 case of Dragonfly Consultancy Ltd v HMRC, the appellant contended the Special Commissioner should have taken account of the concept of intermediate ‘worker’ status.

'Workers' are defined for the purposes of employment law more widely than employees and are different from the self-employed.

To quote from the "Types of employment status" page of the Direct Gov website: “The status of “worker” includes individuals working under a variety of contracts. Employees are workers, but employees have different employment rights and responsibilities than workers.”

Conversely, in his judgment in Dragonfly Henderson J confirmed the general law of employment does not recognise a third intermediate category of “worker” which falls between employment and self-employment. As a consequence, this has no bearing on IR35.

As a result HMRC says that “the decision can be applied to employment status cases as well as IR35, and the quote from paragraph 59 of the decision will assist our defence of such challenges:

“I can see no reason why the Special Commissioner should have taken into account other possible categories of worker which exist only for the purposes of very specific and self-contained statutory codes. I agree with counsel for HMRC that such categories only have meaning and relevance in the particular contexts in which they are found”.

So most people who view the Direct Gov website (or compare notes with other resources on employment law, such as NI Direct Gov) may think that Judge Henderson might be wrong about employment law. It is an interesting point, because a the sub-category of "worker" does really exist (we have various Statutory Instruments to prove it) and perhaps this deserves more thought in a future IR35 case.

HMRC is reviewing its IR35 material following a review by the Office of Tax Simplification.