Synaptek, A genuine business caught by IR35?

This is a full background report into the upcoming IR35 High Court case of Gordon Stutchbury.

Gordon Stutchbury, is perhaps an unlikely focus for opposition to one of the Chancellor's most controversial tax measures. A former policeman turned UNIX Guru from Sunderland, Gordon Stutchbury is a fit-looking 42 year old with light brown hair, and a sporting background that includes Rugby, Boxing and Cycling. Though his days on the beat are years behind him, he has retained a policeman's instinctive reaction to misbehaviour and hooliganism.

"I'm not an aggressive person, but if I see someone breaking the law I am not afraid to get involved. I may get a load of abuse, but I don't like to let things pass." he says, in a soft Geordie accent. He isn't overly concerned that the consequences could be more serious. "I go to the gym three times a week, and if all else fails, I can still run a six minute mile" .

Like the fuel protesters and countryside marchers, Stutch (as his friends call him) is the latest in a long line of unlikely rebels who find themselves pitted against the establishment. Gordon has run an IT consultancy company for 12 years, employed up to 4 people, developed ground-breaking neural- network applications, received a £25,000 grant from the DTI, and provided his services to over 20 clients all over the UK, and in the USA and Germany.

Gordon's company Synaptek, backed by the PCG, is appealing against a decision of the tax commissioners that he was a "disguised employee" of one of his clients, and subject to the hated IR35 tax or "intermediaries legislation". He lives in East Boldon, in the borough of South Tyneside, in a road of neat 1960s detached bungalows, with his wife Carol and 13 year old son, John.

Did he ever expect to find himself taking a representative of HM Government to the High Court? "I never expected to find myself in court other than for the prosecution", says Gordon. "I don't get involved in protests or political activism. But I am the kind of person who stands up for my rights and I hate the uncertainty IR35 brings." Gordon was born in 1960 in Sunderland, the son of a garage mechanic and a factory worker, and raised in the pit village of Boldon Colliery. Unsurprisingly, his parents were life-long Labour voters, as was Gordon until IR35 came along, and forced many people to re-examine their political assumptions. He left school at 16, with 6 'O' levels, and enrolled as a technical apprentice at NEI Reyrolls in Hebburn, going to night-school and acquiring 2 more 'O' levels and an ONC in electrical engineering.

In 1979 he left to join the police force, where he became interested in IT systems. In 1981 he married his childhood sweetheart, Carol Seymour. Gordon resigned from the police force in 1984, leaving with a certificate from the Chief Constable attesting to his exemplary conduct, and went to Sunderland Polytechnic to study electrical and electronic engineering. During his time as a student he volunteered to work in the medical physics department at Newcastle General Hospital, where Carol was a therapeutic radiographer, acquiring a deep interest in medical physics.

After graduating with a BTEC HND in electrical and electronic engineering, he joined the nuclear medicine company Nodecrest, writing device drivers to connect medical equipment to Sun workstations. This involved extensive travel in the United States and Canada, as well as all over the UK, installing and developing Nodecrest equipment. In 1989 Nodecrest went into liquidation and, in the same year as his mother died of cancer and his son John was born, Gordon found himself without a job.

"I couldn't find work in the North East, but I was offered a contract post working for the MOD in Hemel Hempstead. It meant a weekly commute - driving down on Monday morning and back Friday evening". They bought an off-the-shelf company and changed its name to Synaptek. Carol became company secretary. "We needed a company so I could do contract work, but I also wanted to develop technical software, and I realised having my own company was an opportunity to do it."

After Hemmel-Hempstead there was a 3-month contract in Guildford, and in 1991 his first contract with ITSA (the governments Information Technology Service Agency) in Longbenton, Newcastle. In 1992 Synaptek opened an office in South Shields, and employed a graduate to assist Gordon in developing applications in neural computing. They also had a vacation student working for them.Gordon continued doing contract work to finance the software development. He also supervised a foreign student at Newcastle University, and later took him on as an additional employee.

Gordon was invited to speak about his neural computing applications to the Engineering Research Council in Portsmouth, and began to develop software to forecast equity prices. Synaptek was also able to apply its neural computing expertise to the spectral analysis of machine faults, and received a £25,000 DTI grant to support that research. John Prescott, Deputy Prime Minister visited the company, as an example of the kind of small business the Government wanted to support.

Despite considerable interest from potential customers, Synaptek was unable to secure further financial backing, and in 1996, with Gordon working in Germany for 3 months, the research staff were found other jobs with other companies."I continued trying to develop these products, but with my contract work, and without the additional staff, progress has been slow".

In 1999, Gordon was again working in Longbenton. When IR35 was announced, he wrote to his MP, Chris Mullen, and to John Prescott, but received a reply only from the Inland Revenue. "I got a lot of information from the PCG. For me, it was the uncertainty of the IR35 rules that was the greatest concern. Would Synaptek fall under the new rules or not? I have always wanted to keep on the right side of the law, but it seemed that no one knew who was in and who was out."

Despite widespread opposition, IR35 was bulldozed through Parliament and came into force in April 2000.

In early 2000 Synaptek was working for three clients. "I wanted to know for certain my status under the new rules, so I submitted all three contracts to the Revenue" says Gordon. Two were found to be outside IR35, but in the other, Gordon was found to be a "disguised employee" of EDS, through whom he was providing services to the Benefits Agency in Longbenton.

Gordon began a long correspondence with the Revenue trying to persuade them he was not a "disguised employee" but eventually there was no alternative but to appeal to the tax commissioners. Gordon prepared the case and represented Synaptek himself. "I felt wronged. An unjust decision had been made. I have a strong sense right and wrong, and I was sure I was running a genuine business. Nothing had changed".

Gordon had followed the PCG judicial review of IR35, and quoted to the Commissioners the words of Mr Justice Burton. "It is essential to any consideration of the common law test, as to whether an individual is trading as an employee or as an independent contractor, that consideration should be given to whether he is in business on his own account'. Burton had added that this "should be on every tax inspector's wall".

The General Commissioners found Gordon Stutchbury to be "in business on his own account", yet upheld the Revenue's decision that he was subject to IR35. "I knew that if the Commissioners decision went against me, I would not want to continue running a business on those terms. With company turnover taxed as personal salary, which with both employers and employees NI comes to more than 50%, there would be no scope for investment, and no chance to develop the products we had been working on for over a decade". Gordon had lined up a full-time job, and when the result came through he took it, putting the company into suspension. Synaptek had already paid all the tax claimed by the Revenue, and would have been unable to meet the cost of taking the case to the High Court.

"I stepped back and thought for a while. I posted my result on the PCG forum, and was overwhelmed by members' support. There was a general sense of outrage. Shortly afterwards I was approached by PCG, and asked if I would be prepared to take the case to the High Court. I said that provided the costs would be met, I would be more than happy". Meanwhile, Gordon has been getting used to being an employee again after 12 years running his own business. "The company I work for is a body-shop, so the lifestyle is not all that different from being a contractor. The difference of course being that I am working for someone else. That is the strange thing about IR35. There is no problem if the fees I earn generate profits for the owners of the company, as long as I am not one of them."

So, the ex-policeman from the Tyneside pit village, who got himself an education and a small business, had his dreams dashed when the government for which he voted in 1997, passed IR35 as law. A law that appears to say that bosses can make profits from a worker's labour, but the worker himself can't. Interesting times indeed.

However that strange breed of workers-who-are-their-own-bosses, that the Government can't quite understand, are not finished yet. "It is a matter of principle for me" says Gordon. "I've been told I won't get any tax back, but if I can will be a bonus. The important thing is for me is to establish I have the right to run a business and be treated the same as any other business".