The Glasgow Herald reports marketing and business development consultant Susan Winchester had her employment status changed by HMRC from ‘self-employed’ to ‘worker’, but then did not receive the holiday pay she was entitled to.

Winchester subsequently claimed £4.2k in unpaid holiday pay under the Agency Workers Regulations.

Her company – SJW Marketing Solutions Ltd – had provided HMRC with marketing services in September 2016.

HMRC ran Winchester’s engagement through its Check Employment Status for Tax (CEST) tool, determining IR35 applied in her case. This meant Winchester went onto an agency payroll. Winchester claimed that, as she was then effectively an agency worker under AWR, she was entitled to a transparent amount of holiday pay and to the same holiday entitlement as other HMRC employees.

Representatives of HMRC and Winchester agreed to settle the case for the full amount claimed on the morning a tribunal was due to take place.

Winchester’s legal action was funded and backed by the Association of Independent Professionals and the Self-Employed (IPSE), the representative body for the UK’s self-employed community.

An HMRC spokesman told the paper the government department “does not discuss identifiable individuals” but added: “In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself. HMRC was committed to ensuring that its approach to the changes as an engager was clear and transparent.”

Commenting on Winchester’s case, Julia Kermode, CEO of trade body The Freelancer & Contractor Services Association (FCSA), said the result was “fantastic” news for Winchester and all other contractors affected by off-payroll legislation.

“This landmark case illustrates just how complex employment status is and how unfair it is to tax contractors as employees without providing them with any of the accompanying rights and benefits that come with employment. We warned HMRC about the impact the off-payroll legislation would have and now their chickens are coming home to roost; it is somewhat ironic too that Ms Winchester’s client was HMRC, the very governmental body that devised the legislation in the first instance.

“If HMRC does not understand its own policy and cannot implement it how can it expect any other public sector body or private firm to get it right.”

Dave Chaplin, CEO and founder of contracting authority ContractorCalculator, called the case a “game-changer” for public sector contractors who may be eligible for similar pay-outs.

“Given the amount of public sector contractors who have been bundled into these types of arrangements, we expect that this settlement will give rise to a number of similar challenges. Inevitably, this will create financial difficulties for the non-compliant intermediaries, which will hopefully help stamp out this malpractice.

“This case shows that HMRC does not understand the legislation it is supposed to enforce and is incapable of extending the rules to the private sector. It is excellent news for contractors impacted by the draconian off-payroll tax.”

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