Dragonfly Consulting tax case

The Dragonfly Consulting tax case established that the Tax Inspector can question the relationship between the end client and the worker, and if he decides that it is really one of employee and employer, in spite of all the various contracts, agency and service company in place, the extra tax due will fall on the worker's own company.

The case demonstrated how the contract between the agency and the final client can knock for six any clever contract drawn up between the worker's company and the agency. HMRC have proved that the entire stream of contracts needs to be considered and compared to what actually happens on the ground.

For example, the agency may agree to include a substitution clause in the contract with the worker's company, but if this clause is not reflected in the contract with the final client it is ineffective. Even if a substitution clause does exist in the agency/client contract it will be ignored if the client tells HMRC or the tax tribunal that it would never actually accept a substitute for the worker.

To ensure your working arrangement with your client will stand up to challenge by HMRC you need to see all the contracts in the chain, and be sure your client would agree to accepting a substitute if asked to. For help with this contact neil.harries@harrieswatkins.com

Posted in: Bridgend accountants, contractors, tax, Wales