Therefore, if HMRC considers that there are elements that undermine the right of substitution, it will probably argue that the CEST determination is invalid.
What comes next?
There are several ways the government and HMRC could simplify the application of IR35. One option would be the implementation of a statutory employment status test, similar in function to the existing statutory residence test.
Although likely to be complicated and potentially encourage individuals to work the rules in their favour, it could remove some of the subjectivity and make it easier for HMRC to enforce the rules in a more uniform and predictable manner.
In relation to existing case law, it is safe to assume that some cases will be taken further in the UK courts. For example, HMRC may well appeal Lineker’s case on the basis that, if left standing, the verdict would potentially create an IR35-shaped loophole for general partnerships.
Holmes might also look to appeal on the basis that the regulatory pressure of Ofcom does not constitute sufficient control in the hands of the end client (among other points).
However, if an appeal is unsuccessful and regulatory pressure is indeed seen as a right of control held by the end client, there may be some undesirable knock-on implications for other industries where third-party regulation pays a key role — for example, financial services.
In short, existing precedent is unlikely to be longstanding. Advisers, contractors, and businesses together should therefore ensure they stay abreast of any IR35 developments until the time comes when further reform takes place (or not).
Gideon Sanitt is a tax partner and Jack Filer is an employment tax specialist at Macfarlanes
