UK: IT Freelancers – A Status Change?

A recent ruling by the Inland Revenue may have significant implications for consultants working within the IT industry, and for those working with them.

The ruling in question concerned a Mr Bessell. Mr Bessell carried out IT related work for the AA over a period of three years as a consultant. Over this three year period he worked almost exclusively for the AA.

In 2000, the Inland Revenue had introduced a set of rules (the IR35 rules) in order to counteract the avoidance of tax through the utilisation of corporate structures. Under these rules, the Inland Revenue deemed Mr Bessell to be an employee of the AA, basing their decision on the fact that during the period in question Mr Bessell had minimal income from other sources, and that the degree of control exercised by the AA over Mr Bessell was akin to that which would be exercised over an employee.

Mr Bessell appealed to the High Court. The High Court, confirming the ruling of the Inland Renevue, said that the relationship between the parties had the status of employer / employee, basing their decision on the essential facts that Mr Bessell's work could not be easily replaced with that provided by another, and that the management of Mr Bessell's work was of the type normally found in an employment relationship. It further stated that the parties intention as to the status of Mr Bessell was immaterial.

The immediate consequence of this was that Mr Bessell was due to pay tax and national insurance contributions relating to the period that he worked for the AA, a not insubstantial sum. However, this decision may have consequences beyond the field of tax. Under both the Copyright, Designs and Patents Act 1988 and the Patents Act

1977, an employer is entitled to intellectual property created by an employee, provided that it arises as a result of his normal duties. Carrying this decision into these areas could have significant implications upon the ability of contractors to retain ownership of non-project specific intellectual property where this is not addressed properly within underlying agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.