Employment Status - IR35

[Thanks to Ed McFarlane of EEF for preparing this case summary]

The First tier tribunal tax chamber has handed down its decision in MDB Design Services v HMRC, which is authority for the proposition that the guidelines for determining employment status for income tax and/or National Insurance purposes for contractors under IR35 under the notional contract between "employee" and end-user involve consideration of the combined effect of a contract and its practical outworking, as well as mutuality, control, business risk and integration.

HMRC ruled that the sole director of a service company contracted to Airbus over several contracts was an Airbus employee for tax & NI purposes under IR35, the service company successfully appealed. The Tribunal reviewed the case law and set out guidelines at paragraph 53.

Applying the notional contract test to the relationship between the "employee" and end-user as if the service company wasn't involved, the reality of the relationship was typical of a contract for services. Where aspects might point to employee status, due to various factors arising from the special needs of the undertaking including hourly payment, time recording, work approval, on-site working, and intellectual property vesting in the end-user, they had less weight, and were held to be consistent with a contract for services.