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lack of Mutuality allows contractor to get around HMRC

23 February 2011

The rights of an employer to terminate a contract without notice could be key in deciding whether an independent contractor, trading through a limited company, has to comply with tax avoidance measure IR35.

In MBF Design Services Limited v HMRC the tax tribunal decided that the employer’s right to terminate Mr Fitzpatrick’s contract without notice was “characteristic of a contract for services but quite foreign to the world of employment”. Against this background, other terms of the contract which could be seen as confirming his employee status were given less weight.

This will give some comfort to contractors working on large manufacturing, IT or construction projects where contractors are required to use certain systems and procedures alongside employees, but have no true guarantee of work from week to week.

For employers seeking maximum flexibility from their independent contractors it does give an additional argument “after all…”, they can now explain to would-be contractors working for them “this clause helps you retain your independence ….”

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Richard Nicholas

Richard Nicholas

Partner and Responsible for In House Lawyers

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