HMRC defeated in latest IR35 case

HMRC defeated in latest IR35 case

HM Revenue & Customs has lost its case against an IT consultant whom it deemed liable for £243,000 in tax under IR35 legislation.

In a decision seen by FTAdviser, published 29 October, the First Tier Tribunal allowed Richard Alcock's appeal against a previous IR35 decision from March 2017, which ruled that he had to pay income tax and national insurance contributions to the sum of £243,324.

IR35, first introduced in 2000 by then-chancellor Gordon Brown, is an anti-tax-avoidance rule that applies to all contractors and freelancers who don’t fall under HMRC’s definition of being self-employed.

It is designed to crack down on workers supplying their services to clients through an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

From 2010 Mr Alcock, through his limited company RALC Consulting Ltd, entered into a series of contracts with former employer Accenture and the department for Work & Pensions, which was a client of Accenture and whose projects Mr Alcock had previously worked on.

HMRC argued that continuing to work for his former employer implied that Mr Alcock was carrying out continued work.

But Mr Alcock’s lawyer, Chris Leslie from Tax Networks, argued despite having a prior relationship with his clients Mr Alcock’s decision to work for them as a contractor was legitimate.

Judge Rupert Jones dismissed HMRC’s argument saying that the contract did not lead to the expectation that Mr Alcock would be provided with work every day.

The case centred on one of the key tests of the IR35 status known as mutuality of obligation (MOO) and control.

According to Contractor Calculator, which provides guidance for freelancers, mutuality of obligation is one of the essential tests of employment status examined by all tax tribunals in IR35 cases to establish whether a contractor is in fact a disguised employee and therefore subject to the provisions of IR35.

In the latest case, RALC argued that there was a lack of sufficient mutuality of obligation.

Mr Leslie said: “Mr Alcock is clearly self-employed, because he fits the latter sequence of events. He agreed the work to be done, and only that work to be done. Then he got to work and worked very hard indeed to meet the outcome goals. And then he billed only for the work done. 

“His contract specifically states that he can only charge for work actually completed. And to top it off, in one instance they did cut the project short at a moment’s notice, and he was not paid.

"There is no question at all that he could charge just for making himself available, and neither was the client obliged to give him work or allocate work – the work has already been agreed upfront.

"So, since there was no minimum obligation to provide work and no ability to charge for just making himself available, it is clear that the key elements of mutuality, in the work/wage bargain sense, are missing, and therefore he cannot be considered an employee."