Contractors take IR35 blanketers to small claims court

Inaccurate IR35 decisions by their clients and a lack of faith in HMRC has triggered contractors to take costly ‘blanketing’ to a small claims court, a status advisory says.

The legal action could pave the way for “six-figure” pay-outs from end-users or staffing agencies should either party have “failed to comply” with 2017’s IR35 reforms, warns Qdos.

By ‘failure to comply’, the advisory said many engagers were still making blanket decisions, depriving PSCs of a fair assessment of working practices, but imposing an income loss.  

“Most notably [in] the NHS”, Qdos said, “contractors [are blanket determined as] working inside IR35 [so] are taxed as employees but receive no employment rights.”

Chief executive Seb Maley added: “Contractors are [therefore] taking clients and agencies to court in order to claim back the costs of wrongly working inside IR35.”

News of the action comes ahead of this Friday’s deadline for contractors to have their say on the extension to the private sector of the public sector’s IR35 reforms, made in April 2017.

“With private sector changes looking increasingly likely, there’s no reason why [more]  workers subject to incorrect decisions wouldn’t be prepared to do the same thing,” said Mr Maley.

“Given the sheer size of the private sector, this could be a disaster. To avoid the costs and heavy burden of lawsuits, and to protect companies from any resulting settlements, all companies engaging contractors must prioritise accuracy when it comes to IR35 determinations.”

To achieve accuracy, he advised that blanket, role-based IR35 status decisions “simply won’t do”, contrary to HMRC’s suggestions to the May IR35 Forum.

The former Revenue inspector said: “That contractors would rather take the matter to court is a damning indictment of the lack of faith these workers have in HMRC to investigate the case impartially.”