The Inland Revenue was warned not to go on 'fishing expeditions' when investigating a tax payer during a recent hearing at the Special Commissioners into an IR35 case.

The Inland Revenue's case was thrown out after the Special Commissioners found that the Revenue's assessment was found to be invalid.

Accountax represented a contractor, who is a member of the Professional Contractors Group at the Special Commissioners in London. The contractor, a design engineer specialising in the water industry had been subject to an IR35 investigation. A stalemate had been reached with the contractor refusing to answer Revenue questions that he felt were unreasonably onerous or irrelevant. It was also felt that the Revenue was not taking full account of the clear terms and conditions in the contract that had been supplied to them previously.

The appeal was laid down for a Preliminary Hearing where both the Revenue and the contractor sought directions from the Special Commissioner as to the future conduct of the case and confirmation of what, if any, further information had to be supplied.

Accountax argued that the IR35 assessment raised by the Inspector should be declared invalid and discharged as it failed to identify a specific period to which it purported to relate. It was argued by Accountax that for any assessment to be valid in law it must specify a distinct period and cannot be left open ended. The IR35 assessment in question did not identify an end date.

Although there are provisions in the Taxes Management Act 1970 whereby certain errors in assessments can be effectively ignored, it was argued that failing to identify a specific period was such a fundamental error that it invalidated the assessment. Accountax referred to previous Court of Appeal authority, namely Baylis v Gregory 1987 in support of its arguments.

Following detailed arguments the Special Commissioner determined that the IR35 assessment had not been validly made and ordered the inspector to vacate the assessment.

It is still open to the Revenue to consider recommencing the assessment process paying proper attention to the appropriate wording. This technical win does not of itself mean that the contractor is not caught by IR35 but it does mean that the Revenue has been put on notice to ensure IR35 assessments comply with the law.

Following the hearing, David Smith of Accountax said: "So far, taxpayers have been unsuccessful when going to the Special Commissioners on IR35 appeals. However, this hearing clearly confirms that the Revenue has to pay special attention to the wording of assessments and if it gets it wrong the assessment will be thrown out."

Richard Robson, PCG Director said: "This demonstrates the importance of professional support. Contractors who have received a formal IR35 Notice of Decision should take professional advice. They might find that their assessments could be invalid also."

First released on ContractorUK