In Jensal Software Ltd v HMRC [2018] TC06501 the First Tier tribunal (FTT) held IR35 did not apply to an IT contractor working for the DWP; the level of control fell far below the sufficient degree required to demonstrate a contract of service.

The employment intermediary rules, known as IR35 impose employment taxes on a Personal service company (PSC) where the arrangements between the worker and the end client are such that, if engaged directly, the worker would have been an employee. The PSC must treat the amounts received as income of the individual and operate PAYE.

Between May 2012 and April 2013 Mr Wells provided business analyst services to the Department of Work and Pensions (DWP) via Capita Resourcing and through a PSC, Jensal Software Ltd, in a series of three month contracts.

  • He was very experienced, he had worked as a contractor for over 25 years and had been through an IR35 enquiry with HMRC in 2003.
  • He was paid a daily rate with no fixed hours of work, worked at various sites at his own discretion, reported in to a DWP project manager on a monthly basis, set his own deadlines and had a right of substitution subject to the end users approval, which he did not exercise. He ultimately terminated the final contract without reason and without any recourse from the DWP.
  • Mr Wells was not entitled to holiday or sick pay, pension or other benefits, and was not provided with training. 
  • HMRC concluded that had there been a direct contract between Mr Wells and the DWP it would have been a contract of service, not a contract for services, and issued a regulation 80 determination and NIC notice of decision totalling £26,669. Mr Wells appealed.

The FTT in allowing Mr Wells’ appeal stated that:

  • In determining whether a contract is one of employment it is necessary to consider the cumulative features and all relevant circumstances. 
  • The judge outlined the relevant factors in establishing Employment Status as:
    • Mutuality of obligation  to perform personally work offered and to pay remuneration, as the “irreducible minimum ... necessary to create a contract of service” .
    • Whether the worker is subject to a sufficient degree of control, as a contractual right, irrespective of whether that right is exercised.
    • The existence of a right to substitute, irrespective of whether or not that right was exercised in practice.
    • Was the worker in business on his own account, considering who provides the equipment, did he bear any financial risk, and did he have the opportunity to profit.
    • The duration of the contract, degree of continuity and whether the worker was “part and parcel” of the organisation.
  • The judge found that Mr Wells had a contract for services and not a contract of service:
    • Although he provided his services for payment this mutuality of obligation did not demonstrate a contract of services. He received a daily rate irrespective of hours worked, worked on one specific project, and there was no obligation for the DWP to offer further work.
    • Despite requiring the DWP’s approval the right of substitution was sufficient to point away from employment as it was not restricted to specific circumstances.
    • Mr Wells was an expert in his field; any instructions in relation to the assignment were limited and Mr Wells utilised his skills to decide what was needed, how those needs could be met and the timescales in which the task could be completed. The level of control fell far below the sufficient degree required to demonstrate a contract of service.


The judge here took some care and time to set out the relevant tests and how they should be applied. The case is made all the more interesting by the fact that the contracts were with a government department, the DWP. Had Mr Wells undertaken the contracts after April 2017 he would have been subject to the off payroll working in the public sector rules and the DWP would have been required to assess his status.


Personal Service Company (PSC) tax
PSC Contractor Update 2017/18

External Link:

Jensal Software Ltd v HMRC [2018] TC06501



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