Case Law Defined:

The definition of case law from the online legal resource Duhaime (www.duhaime.org). is as follows:

“If a rule of law cannot be found in written laws, lawyers will often say that it is a rule to be found in ‘case law’. In other words, the rule is not in the statute books but can be found as a principle of law established by a judge in some recorded case. "A basic principle of the law applies whereby, once a decision (a precedent) on a certain set of facts has been made, the courts will apply that decision in cases which subsequently come before it embodying the same set of facts. A precedent is binding and must be followed.”

This means that if one contractor with a particular set of circumstances is found by a tax tribunal or court to be inside IR35, another contractor with very similar circumstances will almost certainly be found inside IR35, as the lessons from the first contractor’s case will be applied to the second contractor’s.

Case Law and HMRC
When investigating a contractor, HMRC relies heavily on existing case law, and might even choose to investigate and push certain cases to tribunals and the courts so that new case law can be tested.

In its leaflet ES/FS1(formerly IR56), which is designed to help employees and the self-employed determine employment status, HMRC states that it considers case law to be the principles guiding employment status. ES/FS1 says:

“The law for tax, NICs [National Insurance Contributions] and VAT doesn’t define employment or self-employment. Generally, when we look at employment status, we apply the principles established by the courts. These principles are generally referred to as case law.”

HMRC’s regularly updated Employment Status Manual includes a comprehensive list of relevant cases and case law. The organisation’s Litigation and Settlement Strategy clearly states that HMRC will pursue some cases, regardless of the tax yield, where an important point of tax law is at test.
Case law evolves – generally not to contractors’ advantage!

Clearly, therefore, contractors who wish to remain outside IR35 need to keep on top of changing IR35 case law.

Case law is not static and changes over time as different interpretations of laws are made. Since the introduction in 2000 of IR35, many cases have been heard in tax tribunals and the courts, generally resulting in rulings that have gradually refined the case law. When investigating a contractor, HMRC relies heavily on existing case law, and might even choose to investigate and push certain cases to tribunals and the courts so that new case law can be tested. HMRC naturally interprets existing case law in favour of finding contractors to be disguised employees who are therefore inside IR35. Often tribunals and courts have been sympathetic to this view, which means that the general evolution of IR35 case law has been against contractors’ interests.

This is because where there were previously grey areas, commissioners and judges have ruled one way or the other to settle any ambiguity, thereby creating more case law.

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