Don’t jump straight in and assess whether an individual’s relationship with an end client is akin to an employment relationship and therefore caught by IR35. It is important to pause for a moment first and determine who in fact should be the one to take the plunge.
If you are lucky enough to be tasked with the fun job of assessing IR35, the starting point must be to determine “who is the client”. Whilst many supply chains may be simple and the answer clear, this cannot be overlooked.
Prisma case
The recent case of Prisma Recruitment Ltd v HMRC [2023] was a timely reminder of this. In this case, Prisma was a recruitment company that supplied personnel to BGM who were a workplace consultancy business. BGM then undertook consultancy projects for its clients including the likes of RBS. A standard supply chain that is seen across many industries.
The tribunal were tasked with establishing whether BGM or RBS would have been “the client”. This is not an IR35 case, but the principle is nonetheless an important one! If HMRC were to challenge a similar supply chain under the IR35 legislation, determining this fact would have a significant impact on who would be responsible for applying the IR35 legislation.
It is commonplace in IR35 to focus on the “end client” and this terminology is used regularly (even by the tax tribunals). This may lead to the assumption that RBS would be the client for the workers supplied by Prisma. In this case however:
- BGM billed on a project basis, not time worked.
- BGM was not deemed an intermediary and instead determined what projects the workers worked on.
- BGM could manage the workers and determine what they did.
- BGM, not RBS would authorise the timesheets.
- The workers could be moved to different clients of BGM.
The tribunal therefore held that they had no hesitation in determining BGM were the client, even though the individuals were effectively providing consultancy services for the benefit of RBS.
Identifying the wrong client
The need to identify the client for IR35 purposes is not new. In fact, one of the early IR35 cases – Tilbury v Gittens [2003] looked at a similar contractual relationship and HMRC identified the wrong party as the end client (Ford) which arguably lost them the case. This mistake by HMRC just meant it was easier for the taxpayer to defend the position, it did not alter who would have been liable.
The IR35 legislation has changed since that case however and identifying the wrong party as the client can now have significant repercussions on the parties’ obligations and liabilities.
Where to start?
The starting point with IR35 is to first establish which party will be “the client”. Then (and only then) can you move on to consider the size of the client’s organisation to determine whether the old IR35 rules apply (Chapter 8 ITEPA 2003) or the new rules (Chapter 10).
The parties will then know who will be responsible for taking a trip into the cold dark ocean of legislation and case law. If the wrong party is made to walk the plank however, the sharks will be circling for all involved.
