Tax Director of WTT Consulting Ltd.
Specialist tax enquiry firm, with a strong presence in the contractor market
With respect, that is a shockingly naive statement that is not borne out by the facts laid out in the report.
The report is "excoriating". It calls for a root and branch review of HMRC and its relationship with its oversight. As will be obvious to all, having your major beneficiary and the party responsible for oversight as the same entity, is hardly a recipe for objectivity and integrity.
Anticipating the usual nonsense we see here and elsewhere about "greedy contractors, avoiding tax" and therefore deserving all they get, just be aware that the report considers the manner in which this crisis arose.
It says that HMRC failed in its primary duty to identify and prevent the sort of schemes now classed as avoidance, despite having all the data they needed.
It says that HMRC failed to make its position clear and failed to take action against the employers and promoters. (In February this year HMRC has permitted a major player, based in the UK, to be struck off with no claim being made against them).
It says that HMRC, faced with exposure of its shabby performance, came up with a retrospective tax charge to cover its blushes.
It says, damningly, that senior HMRC officials allowed all of this to happen and supported it with research and statistics that were inadequate or incomplete.
It says that senior HMRC officers may have breached the Civil Service Code and should be identified an disciplined.
If all of the above is correct - and I can say from the evidence of individual client enquiries, I very much fear it is - the HMRC had the opportunity in around 2004/05 to stop all of this happening - and did not. What started as incompetence worsened perhaps by lack of resources, meant that it later required a "cynical" campaign of misinformation and misleading Parliament.
I'm sure we will see messages here saying fault lies at the feet of contractors. It does. (Not because as the article says they used a scheme to avoid tax but because they put finding and securing a job over and above all other considerations). However all of my clients would have stopped in 2004/05 had HMRC been on their game.
They were not. Worse, having fallen behind in the game, they now attempt to change the rules by misleading the referee.
The situation of Ms Kelly was obvious to the Judges. It was obvious to her advisers. It was obvious to her. The Judges are unequivocal - she was outside IR35. Her advisers presented their case with equal clarity. Ms Kelly was clearly - and justifiably - upset by what she saw as unfair and bully boy tactics designed to pressure her into accepting an illegal settlement.
This is a case that surely somebody in the no doubt long and tortuous chain of people within HMRC had to have approval from to spend taxpayer money should have had the courage to stand up and say "can we win this"?
I cannot believe that all the people in that chain had a view that the case would be won. Worse, some of them would have foreseen the loss and realised that losing another case in this space would expose them.
This is a slam dunk win and whilst I anticipate an appeal (wasting more money), HMRC will lose again because any reasonable person can see it's an unwinnable case for HMRC.
You may have good reason for urging all us responders here to see this in a more balanced way and that is to your credit. However, the HMRC case was hopeless, has been shown as hopeless and I for one hope that common sense makes a rare appearance at HMRC and this is the last we hear of this.
That's sarcasm, right?
Why is it "odd"?
HMRC's case was full of holes. The points raised by their representative were discussed by the Judges and in pretty much every instance they preferred the analysis of Ms Kelly's representative. There is even the suggestion that HMRC misled the views and answers of third parties and tried to claim that Ms Kelly was evasive and elusive in how she answered questions. This also the Judges remarked upon to the detriment of HMRC's case and in particular its presentation.
I therefore do not find it "odd" that any reasonably objective professional should read the case and come to the conclusion that it was taken on such a biased interpretation of the facts as to be unreasonable.
You are perhaps implying that I act out of commercial interest which colours my view? I do run a firm that specialises in contractor tax enquiries, but not IR35 status enquires - yet. We are preparing for the inevitable continued raid on our clients via such status reviews, hence my interest here. Does that colour my view? Probably it does. Does your experience, commercial or academic view, influence your opinions? I suspect they do even if you think not.
Does it matter that we have partially subjective views? I think not. The facts here and the analysis of those facts as presented by the Judges are clear. No reasonable person could claim that Ms Kelly was an employee of ITV.
I suggest that HMRC knew this prior to going to Tribunal, hence their cynical attempts to cast doubt upon the integrity of the witnesses, despite the Judges saying that the terms under which they gave evidence to HMRC were not explained to them and HMRC made subsequent amendments to meeting notes without their knowledge.
I make no comparison to the Ackroyd case. That is entirely different and stands or falls on its own merits.
I do not find it "odd" to criticise HMRC for wasting my money.
There is a world of difference between HMRC bringing a case that was unlikely to win and which any commercial party would regards as unreasonable and the rather purist and higher barrier imposed by Tribunal rules.
To argue that she won because she could afford a better barrister is brave. Do we get the justice afforded by the law or do we get the justice we can afford?
We all know that costs against HMRC on any grounds, including unreasonable behaviour, is rare and any commercial minded barrister knows this and will not waste client fees in such a pursuit.
If tax is to be a neutral factor in choice of how to work, then HMRC cannot be allowed to dictate personal financial management.
You will also find that those who are self employed or operate via a PSC (often at the insistence of the engager) are taking more risk (no sick pay, no holiday pay, no insurance, training, etc) that is not always reflected in the rate of remuneration. That is not in itself a reason to "game" the tax system, but rather a principle that the tax system has recognised for decades and which provides for an arguably more generous application of the rules.
That generosity is declining but still exists. Modern ways of working are making the tax rules more and more inappropriate and I agree that a root and branch review is needed, not just of the rules but crucially how they are applied by an increasing desperate HMRC out to "maximise revenue".
Tax policy driven by a dogma based on maximum money grab will drive more and more honest and hard working people into the arms of tax planners, promising something for nothing.
It may have been "far from hopeless" but it was equally far from the terms and conditions in the LSS. These require that absent a public interest motive, there is at least a chance of securing a win. To move into litigation without that is reckless.
It also risks throwing public policy into disarray. HMRC has long advanced the theory that the contract and its terms is just one part of the equation in measuring what the actual relationship is between worker and engager. They claim that the actual work done and the manner of it happening carries more weight than the words on the contract.
I would agree. Not only is that sensible but it aligns with judicial principles.
Here, that argument seems to have been disregarded by HMRC who have poured their energy into looking at the words and ignoring the deeds. That inconsistency is also reckless in that it undermines public policy.
Very good article and a good starting point for what will no doubt turn into a forensic examination of these issues when HMRC wastes yet more time and money in the inevitable appeal.
Couple of issues though.
First, why did HMRC take such a hopeless case? I get the fact that they want to use a household name to get the publicity, but to risk doing that and losing shows a deep and disturbing lack of judgement at HMRC. The problem, in my opinion, is that HMRC is blind to the risk/reward algorithm and their internal dogma is to select those parts of the LSS that they like and use that to justify prosecution.
When will HMRC engage a "fresh pair of eyes" on such cases? If they did so here, they would never have taken this.
Second, Ms Kelly was never "on the hook" for IR35. The Judge is clear and cogent in the reasoning. Not mentioned in much detail however is the fact that the company had been going since 1992. IR35 arrived in 2000. The contract was signed 2012. Presumably the CT return was made in 2013. Yet it took 6 years to get to even FTT. That is no doubt 6 years of Ms Kelly's life lived under constant stress and perhaps distress for all I know. Completely unacceptable in any civilised society, especially when perpetrated as a deliberate and sustained policy by a public body.
I have other points but will come back later.
I'm assuming that the above is tongue in cheek or heavily sarcastic?
Did you read the case?