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Dragonfly Consulting Limited lost its appeal to the High Court and now faces significant IR35 liability, thought to be in the region of £99000. In this article we will explore the reasoning behind this judgment and the lessons that can be drawn.
This is an important event and is only the third appeal to the High Court from the Commissioners following Synaptek and Usetech. The facts of the case are well known and are summarised below.
Dragonfly provided systems testing services in relation to three projects over the course of a three year period. Crucially, the Schedules to the agreement between Dragonfly and the agency, DPP, simply referred to the job title of ‘consultant’, not a discrete project basis as in the case of
Datagate
. Mr Justice Henderson upheld the Special Commissioner’s finding of fact that Dragonfly was not engaged for a specific project and was allocated work by the AA throughout the term of the engagement.
Other relevant factors included: .
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The contracts were of fixed term duration
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The qualified and unexercised right to substitute did not remove the requirement for the personal service of Mr Bessell. The contract between DPP and the AA was silent on substitution.
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In practice, the AA was obliged to make payment if Mr Bessell was available for work regardless of work done by Mr Bessell.
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Mr Bessell worked regular hours.
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There was a requirement for Mr Bessell to attend at the AA’s premises.
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The AA exercised a significant right of control in practice; Mr Bessell was subject to guidance and supervision by the AA in excess of what would normally be expected in a relationship of self-employment. This was reflected in early versions of the contractual documentation.
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Mr Bessell was part and parcel of the AA’s business.
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Dragonfly was not subject to significant financial risk and work for one other client did not form a significant part of its income.
This is a significant result and confirms once again Lawspeed’s advice since the commencement of the IR35 legislation in April 2000 that amongst other things there must be a genuine pre-agreed project basis to the engagement if a contractor intends to operate outside IR35.
In conclusion, this judgment emphasises the importance of making sure that the contractual documentation reflects a genuine relationship of self-employment and, above all, of taking impartial legal advice prior to the commencement of an engagement.
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