IR35 tax cases

The cases below demonstrate when IR35 applies.

Lime-IT Ltd v Justin (Officer of the Board of Inland Revenue) (2003)

The taxpayer company contracted via an agency to provide IT services on various specific projects to the end-user. Those projects were expected to take one year to complete.

The taxpayer company (with F as its only employee) was expected to work an estimated 37 hours per week or such hours as were reasonably requested by M.

The contract contained a substitution clause, under which the company could send in an alternative worker.

During the contract, the taxpayer company worked for four other clients. F worked at one of M's offices, and partly from her office at home, where there was a room containing four computers dedicated to the taxpayer company's business.


It was held that it was necessary to 'look through' the intermediary company and establish whether, in the absence of the intermediary company, there would be an employment or self-employment relationship.

It was held that, based on the facts presented, the relationship would have been one of self-employment.

An interesting side issue was that the appellant, as appears from the correspondence, was unhappy with HMRC's handling of the case and Mr Justin produced a lengthy note saying that he was not happy either with the way the case had been handled and, with the guidance currently available, he would have tackled the situation differently, for which he apologised to the appellant.

In particular, when he gave his initial opinion that IR35 applied he was working on new, unpopular legislation and the guidance was inadequate.

Synaptek Ltd v Young (2003)

As in the Lime IT case, a contract was set up through an agency to provide the services of an IT consultant to an end user.

The minimum hours to be worked were broadly equivalent to a normal working week.

It was observed that the only risk borne by Synaptek was the possibility of D becoming insolvent.

The duration of the contract was for a fixed period of six months; the worker had a line manager and was required to comply with the engaging company’s instructions.


It was held in this case that IR35 should apply.

Tilbury Consulting v Gittins (2004)

Tilbury Consulting Ltd (TC) provided the services of its principal director (T) to another company (C), which in turn provided them to Ford.

HMRC issued a ruling that the arrangement was within IR35. TC appealed.

The special commissioner reviewed the evidence in detail and allowed the appeal, finding that 'the facts show that C and not F had engaged as principal.

It equipped itself with its own specialised personnel to discharge its own obligation to Ford, either by employing them directly or by engaging outside subcontractors, such as TC.

F did not exercise control over the manner in which the C personnel carried out their duties. To the extent that control was exercisable over the performance of T's services, that lay with C.

Ford accepted suitable substitutes from C and TC. At no time was T a part of Ford’s business or undertaking.


The facts were inconsistent with an employer/employee relationship between Ford and T and consequently IR35 should not apply.

The existence of a substitution clause was starting to emerge as a key consideration in establishing whether or not IR35 should apply, and this was further reinforced in other cases, including Ansell Computer Services Ltd v Richardson (Inspector of Taxes) (2004).

Demibourne Ltd v HMRC (2005)

B had been employed by D Ltd to carry out general maintenance at their hotel.

Following his retirement he continued to work in the same capacity but he was treated by his former employer as self-employed on a contract for services.

PAYE was not operated and he was regarded as self-employed and had no holiday entitlement. He had a limited choice as to what work he should undertake, and as to the hours that he worked.

As a very experienced worker with detailed knowledge of the hotel's infrastructure, he needed little supervision. This had also been the case during his period as an employee before his retirement.

In the same way as he had done while an employee, B provided his own tools, a number of which were kept at the hotel.

For purchases of goods, B either used his own credit card and was later reimbursed by the hotel, or the purchase was in the name of the hotel.

B issued invoices in respect of each period worked. On occasions, he carried out a small amount of work for other people.

B reported his earnings to HMRC on the basis of being a self-employed individual, and paid tax accordingly.

Following an employer compliance visit, HMRC concluded that B should be treated as employed rather than self-employed. Determinations were issued to collect PAYE and Class 1 NIC, which HMRC deemed should have been deducted.

It was held by the special commissioners that Mr B’s status after his retirement remained that of an employee.

For a person previously engaged as an employee to become an independent contractor working for the former employer, there had to be a clear distinction between the employer/employee relationship and the new one amounting to a contract between client and independent contractor.

B's engagement, subsequent to his retirement, was very similar to that of his former employment and, taking all factors into account, B’s status remained that of an employee.

NOTE: An important side issue arose in the Demibourne case, namely concerning where tax/NIC has been paid by an individual as self-employed. The engagement is reclassified as employed so, effectively, the tax/NIC has been paid by the wrong legal person.

Dragonfly Consultancy Ltd v Revenue and Customs Commissioners (2008)

A contract was set up through an agency to provide the services of an IT consultant to an end user, this time to the AA.

In this case it was observed that the IT contractor involved worked fairly regular hours during each engagement, worked on parts of a project that were allocated to him as part of the AA's teams, was integrated into the AA's business, and had a role similar to that of a professional employee.


It was held that IR35 applied in this case. The importance of being able to send in a substitute to do the work and the amount of control that the 'customer' was able to exercise were highlighted as being crucial.

Novasoft Ltd v HMRC (2010)

Novasoft entered into a contract with an IT agency, Lorien Holdings Ltd, to provide IT consultancy services of Mr Brajkovic to Zeneca Specialities (which later became Avecia) at their premises, for a standard hourly rate of £34 per hour for a standard 36 hours per week.

The contract was extended at various intervals and ultimately expired in December 2002, some four-and-a-half years later.

The contract did not prescribe the exact hours to be worked, nor did the company have any control over the way in which Mr Brajkovic carried out his work. The contract did not contain a substitution clause.

Mr Brajkovic worked at the client’s premises although he was not permitted to use the staff car park, had a visitor’s rather than an employee's work pass, was not subject to the normal staff training programmes an was not permitted to attend staff events.

HMRC contended that IR35 should apply but Novasoft appealed.


The tribunal cited the wording in Hall v Lorimar, that it is necessary to 'paint a picture from the accumulation of detail'.

It was decided in this case that the overall picture in this case was one of 'self-employment' and that the IR35 legislation was not appropriate.

Visit the 'Related links' section on this page for more on the above case and for further information on HMRC guidance.