Ex-Policeman Attacks Inland Revenue Over IR35

by Jason Gorringe, for LawAndTax-News.com, London

25 February 2003

A case beginning this week in the UK High Court is the first hearing of an individual action under the controversial IR35 tax laws, and as such is regarded as a significant test case.

Gordon Stutchbury, a former police officer turned IT freelancer from Sunderland, formed his company Synaptek Ltd in 1990, and has provided services to over 20 clients, often simultaneously, in the UK, US and Germany, employing up to four members of staff. Synaptek has developed ground-breaking IT software applications, receiving a £25,000 grant from the DTI, and Stutchbury has been praised for his entrepreneurial skills by Deputy PM John Prescott.

In early 2000 Stutchbury was working for three clients. When he submitted all three contracts to the Revenue, two were found to be outside IR35, and in the other, he was found to be a "disguised employee" (for the purposes of IR35 only) of EDS, through whom he was providing services to the Benefits Agency in Longbenton.

Stutchbury paid all the tax demanded, but appealed to the Inland Revenue , then the General Commissioners, preparing the case and representing Synaptek himself. "I never expected to find myself in court other than for the prosecution", says Stutchbury. "I don't get involved in protests or political activism. But I am the kind of person who stands up for my rights and I hate the uncertainty IR35 brings."

The outstanding feature of this case is that the General Commissioners found Stutchbury to be "in business on his own account", yet upheld the Revenue's decision that he was subject to IR35. This decision has been contrasted with assurances given by the government that genuine businesses would not be affected by IR35".

Synaptek would have been unable to meet the cost of taking the case to the High Court, had it not been selected for support by the Professional Contractors Group, which represents some 12 thousand independent freelance professionals, and of which Stutchbury is a member.

When PCG failed to have IR35, properly called the "intermediaries legislation", overturned under European law in December 2001, it vowed to continue the fight by supporting members in selected cases that would help to establish case law. PCG recently won the Lime IT case at the Special Commissioners.

This hearing is a significant milestone in the battle for independent freelancers to be treated as such when it comes to taxation. It has taken more than two years from the initial Inland revenue opinion to reach the High Court and a ruling is not expected for several weeks after the hearing. Counsel for Synaptek will argue that the case should be referred back to the Commissioners for further findings of fact before the High Court takes a view.

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