Larkstar Data Limited (2009)

What’s the case about?

In January 2008, Mr Brill of Larkstar Data Limited, decided to challenge HMRC’s decision that his two and a half year assignment to MBDA, through Technology Project Services Limited, was captured by IR35. He was faced with the decision of making his appeal to either the General Commissioners or the Special Commissioners. Mr Brill opted for the General Commissioners and took the opportunity to represent himself.

This was his first mistake as IR35 cases are usually heard by the Special Commissioners due to their complexity. The General Commissioner ruled that HMRC had got it wrong but when they appealed this, the High Court set aside the General Commissioners’ decision because the correct law had not been applied.


Why did the High Court accept HMRC’s appeal?

HMRC was successful because The High Court considered that there were two areas of the General Commissioners’ decision which could not be substantiated by the law:

1. Control

The General Commissioners focused on whether Mr Brill was told how to carry out his work and determined that he was a consultant and not under the control of MBDA.

Unfortunately for Mr Brill, it has long been established that this can not be the decisive factor when dealing with highly skilled professionals. This is because highly skilled professionals are unlikely to be told how to perform their function irrespective of them being employed or engaged as an independent consultant.

Mr Brill was also required by MBDA to work a 37 hour week. All independent contractors should ensure they have total flexibility in the way they provide their services. If the contract requires you work a set amount of time every week, then this suggests the client has some control.

Varying the number of hours worked each week for a particular client demonstrates that the contractor decides when to work.

The General Commissioners’ statement that Mr Brill was only ‘encouraged’ to work during MBDA’s core hours was not reflected in the evidence.

2. Mutuality of Obligation

The High Court disagreed with how the General Commissioners dealt with the issue that Mr Brill was engaged on a succession of 6 monthly contracts. The General Commissioners focussed on whether MBDA was obliged to offer future work outside of these 6 monthly contracts which is inconsistent with the law in this area. The law requires an analysis of each individual contract for the General Commissioners to decide whether there was an obligation on MBDA to offer and pay for work during each contract. And, conversely, whether Mr Brill was obliged to carry out the work offered during each contract.

On its own, the fact that Mr Brill was given 6 monthly contracts does not appear to be detrimental to his employment status. However, the fact that there was no obligation on either party to work beyond each 6 month period was not enough to demonstrate that there was no mutuality of obligation.

It is essential for contractors to demonstrate that they are engaged on a fixed project or body of work and not simply an extension of the client’s own workforce. It is vital for all independent contractors to be able to demonstrate that they are in business on their own terms. It’s equally important that contracts and working practices are assessed by an expert to ensure that they remain compliant with the IR35 legislation.

Why didn’t the High Court just decide the case instead of referring it back to the General Commissioners?

HMRC did not ask the High Court to make this decision when it appealed. As a result, HMRC did not supply the High Court with enough information for it to make this decision. HMRC only provided it with the original General Commissioners’ decision and their reasons as to why it was wrong.


What happens next?

Mr Brill must choose one of the following options:

  1. Have his case heard by a new General Commissioner;
  2. Agree that HMRC was correct in deciding that IR35 applied to his work and agree a settlement with HMRC before the case is re-heard by the General Commissioner; or
  3. Appeal against the High Court judgement.

If Mr Brill has the case heard by a new General Commissioner, the case may take between 6-9 months to be re-heard, unless it is rushed through the process so that the case is heard before the General Commissioners are abolished in April 2009.

If Mr Brill agrees a settlement the case will disappear and we will not hear anything further.

It is highly unlikely that Mr Brill will appeal against the High Court judgement. He would then have to prove that the High Court had erred in making its decision and could face further costs if he lost that appeal. It is also unlikely that the Court of Appeal would grant its permission for the appeal.

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