22nd April 2024
Written by Qdos Contractor
Saga reignited by HMRC appeal, with latest twist a stark reminder of the complexities of IR35 legislation
HMRC has been granted the opportunity to appeal a 2019 First Tier Tribunal (FTT) ruling, reigniting an IR35 case carrying a liability of almost a quarter of a million pounds.
The tax office contested the previous finding in its pursuit of RALC Consulting Ltd., on the grounds the judges had “erred in law” in reaching their decision – something the Upper Tier Tribunal (UTT) agreed with.
Previously, IT contractor Richard Alcock – director of RALC Consulting Ltd. – successfully contested HMRC’s accusations that he was working as a disguised employee.
The latest twist in this IR35 saga means the case will be reheard. Cruelly, Mr Alcock now faces the prospect of returning to the FTT five years after it ruled in his favour – and fourteen years on from the engagements in question.
So, how did we reach this point? And what can contractors and businesses learn from this long-running IR35 feud?
Let’s take a look…
A brief case history
This case relates to work carried out by Mr Alcock for Accenture and the Department for Work and Pensions (DWP), from 2010/11 to 2014/15.
HMRC took the view that he had been wrongly working outside IR35 during this time and as a result, owed £243,324 (£164,482 in income tax and £78,842 in NICs). Mr Alcock appealed and it was decided at the FTT in 2019 that he was a genuine contractor, who had been working compliantly all along.
The case hinged on Mutuality of Obligation (MoO) and control – with the FTT judges ruling that Mr Alcock wasn’t obliged to carry out the work, nor was he controlled by his clients.
Case closed. Or was it? Unfortunately not. HMRC appealed this decision, arguing that the FTT had “erred in law” in constructing the hypothetical contract between the parties.
As a reminder, the hypothetical contract is one way of testing whether an engagement is likely to resemble employment or self-employment.
HMRC’s appeal stands
Following a lengthy wait – five years to be exact – HMRC’s appeal was granted at the UTT in December 2023, with the ruling reached this month.
At this stage,
the judges ruled the FTT failed in “properly constructing a hypothetical contract for each of the engagements”. As such, the judges have sent the case to be reheard at the FTT.
Admittedly, this decision wasn’t made lightly, with the tribunal noting the “difficulties” the decision would cause, “in particular, for Mr Alcock”.
What does this result mean?
First of all, this result is a timely reminder of the importance of being able to demonstrate compliance – crucial for historic engagements as much as it is for more recent ones.
But there are some additional considerations…
- Liability: with almost a quarter of a million pounds at stake, this case highlights the extreme risks of non-compliance and the lengths HMRC will go to when chasing ‘lost’ tax revenues.
- Complexity: this case was decided on an error made by the judges as they interpreted existing case law. If the judges struggle to understand IR35, how can contractors and businesses be expected to navigate these complexities without support?
- Unfairness: 14 years on from the engagements, and five years after being cleared of any wrongdoing, this case crystallises HMRC’s aggressive approach – and adds to the feeling that the odds are stacked against contractors.
With this in mind, expert support and protection from IR35 is advised – and can make the difference in shutting down IR35 investigations at the first hurdle.
