A worker who was offered services through a limited company has been awarded nearly £15,000 in the tribunal case for unfair dismissal. According to Justin Roberts, a Senior Manager at Ernst & Young (EY), the case outcome serves as a reminder to employers about the consequences of non-compliant efforts to reduce taxes.

The case shows that employers need to be extra careful when the off-payroll working rule is implemented in the private sector in April 2020.

Details of the Case

In the tribunal case Mr A Reily v AJS Interiors Ltd., the plaintiff was engaged by the defendant through a limited company. The plaintiff established ACJJ Building Services Ltd. following the instruction of the plaintiff and started offering services through the company. However, it was revealed that the plaintiff was forced to continue providing work as per the employment contract.

After the plaintiff was terminated this year, he filed a case against the defendant for unfair dismissal, as well as not giving holiday pay and a pay notice.

While the defendant argued that the plaintiff had signed an agreement to offer services through the subcontracting company, all facts pointed to a continued employment agreement, which included no control on the nature of work, exclusive provision of services, regular work hours between 8:00 am and 5:30 pm, 45 hours per week work requirement, use of the company car, and paid holiday leave.

These factors led the presiding tribunal judge to conclude that the facts clearly show that the defendant required the plaintiff to continue working as per the employment contract, which was initially formed in 2006.

The outcome of the case should serve as an example for other companies who engage in similar schemes to reduce taxes and employment costs. It is expected that the IR35 rules that will be implemented in April 2020 and will encourage many private sector companies to take similar drastic actions. But the outcome of the case shows that this could land them into financial trouble.

According to John Chaplin, an EY Associate Partner, the case outcome shows that contractors are not the only ones who are responsible for engaging in activities to avoid taxation.

The ruling of the ET demonstrates that both employers and contractors need to be careful with employment schemes to ensure that they are not inadvertently breaking any rules. Not doing so could result in grave financial difficulties.