I am still advising on matters whereby so called “freelancers” status is being called into
question. The practical problem is that the “employer” will be hammered by the Revenue
if they are found not to operating the procedures correctly. Even if steps have been taken to
use service companies – where the underlying business relationship does not support the fact
that there is a bona fi de non IR35 situation – penalties will still be incurred.

In a recent case – Dragonfl y Consulting Limited – even though there was the key clause
allowing substitution – it was in fact found to be “bogus” and did not have any commercial
bearing – as such the contractor was found to operating an IR35 company.

The advice must be for the engager – to ensure that the freelancer is a proper freelancer or
else insist they have a service company. Although this imposes additional costs for all parties
in the short term – in the long term it will be seen to be best practice – even if it fl ies in the
face of historical custom and practice.

From the freelancer’s point of view – unless the commercial reality is one of genuine
freelance status – then the costs incurred in trying to prove that their service company is not
a PSC will outweigh any short term advantage.

(The case of Castle Construction should also be considered – as it refl ects the strength of
having a considered and commercial arrangement with sub contractors and in this case the
tax payer substantially won against the revenue)

My feeling is that both sides of the relationship have viewed the Revenues change of
procedures over the last few years with a King Canute disdain but they will not be able to
change the direction of the tide – and so all had better face reality or in the extreme case
face the fact that settlements can bankrupt a business – at the very least – where a potential
exposure is discerned – take steps to protect assets as described in earlier Updates.

I would also remind you that the Employment Status Indicator is available at: