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IR35 case goes back to FTT again after five years

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An appeal by HMRC has been allowed by the upper tribunal meaning the taxpayer now has to go back to the first tier tribunal for a rehearing of their IR35 case.

19th Apr 2024
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Back in December 2019, IT contractor Richard Alcock won his IR35 case. HMRC had deemed that his company owed £243,324 under the IR35 intermediary legislation.

Unfortunately for Alcock, HMRC appealed and has just won its appeal on two grounds. However, the upper tribunal (UT) has sent the decision back to the first tier tribunal (FTT) to remake the decision with new guidance (HMRC vs RALC Consulting Ltd [2024] UKUT 00099).

In brief, RALC was Alcock’s personal service company, providing his IT consultancy services for fixed periods of time through an agency to the end clients Accenture and DWP.

There was a “lower level” contract (LLC) between RALC and the agency and a further agreement between the agency and the end client, which was referred to as the “upper level” contract (ULC). 

HMRC appealed on the following grounds.

Ground 1: The FTT failed properly to determine what the terms of the hypothetical contracts would have been and apply the common law test of employment to those terms.

Ground 2: The FTT erred in law in its approach to mutuality of obligation.

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Replies (22)

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By Justin Bryant
19th Apr 2024 16:23

And I recall some fool once saying here that IR35 was "simple"!
https://www.accountingweb.co.uk/community/blogs/davechaplin/learning-les...

It needs to be abolished as totally unworkable and replaced with a bright-line statutory employment test for tax purposes (like the SRT replaced the wholly unworkable common law residence test).

Thanks (11)
Replying to Justin Bryant:
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By johnjenkins
22nd Apr 2024 10:34

Justin IR35 is simple (HMRC like to make it difficult). If you have a watertight "contract for services" not a "service contract" and, Justin, this is the important bit that people sometimes stray from, STICK to it by the letter. there is then no MOO, no hypothetic contract etc. However I do agree that it should be abolished and that HMRC should keep their noses out of employment status.

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Replying to johnjenkins:
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By Justin Bryant
22nd Apr 2024 10:52

No. An ISA is fairly simple. That's probably why there's never been an FTT case on an ISA (to my knowledge at least). It's hard to think of anything less simple than IR35 and that's borne out by this and many other IR35 tribunal/court cases where judges clearly do not understand it and that's clearly not just due to HMRC being difficult (HMRC don't fully understand it either of course).

As another small example of that, just look at how Autoclenz was recently distinguished by CoA and yet was being applied to IR35 cases for the past decade or so before then.

I'm not sure what you mean by your "watertight"arrangements above, as that would only apply to obvious SE things like hiring a tradesperson to fix your washing machine etc. and so does not advance the argument. Anything not obvious like that cannot be watertight in the first place (as these numerous IR35 cases have shown) simply as a matter of contractual drafting (otherwise you are putting the cart before the horse).

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Replying to Justin Bryant:
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By johnjenkins
22nd Apr 2024 12:02

Justin, the problem is (this is why HMRC have picked up on it) that people aren't sticking to the "contract for services". They get complacent. The reason why there aren't more cases is that most people stick to their contract so HMRC have nowhere to go. It's no good having a "contract for services" then do something completely different and this goes for the work giver as well as the work doer.
A "watertight" "contract for services" is one that cannot be construed as an employment contract.

Thanks (1)
Replying to Justin Bryant:
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By dstickl
22nd Apr 2024 10:44

How about ... a bright-line statutory employment test/s for tax purposes ... being statutorily identical to ... the employment test/s for the purposes of an employment tribunal, please ?

Thanks (1)
Replying to dstickl:
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By johnjenkins
22nd Apr 2024 12:04

How about HMRC keep their noses out of employment status cos it's a commercial decision that's why there is no legislation that defines self-employment (I wonder why that was).

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Replying to johnjenkins:
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By dstickl
22nd Apr 2024 15:21

Just my point, and thanks.

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Replying to dstickl:
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By johnjenkins
22nd Apr 2024 15:51

They could keep the test really simple. If no holiday or sick pay, if no notice period, if no obligation to make work available, if equally qualified substitute allowable (paid for by the subby), if shoddy work has to be put right etc. This is in fact what a "contract for services" should look like, however HMRC like to tinker in order to get people on PAYE and destroy the small business. Won't be long before we go back to the dark pre Maggie Thatcher days. "crisis" what crisis? ( I know JC didn't actually say it)

Thanks (2)
Replying to johnjenkins:
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By abelljms
23rd Apr 2024 07:29

you're right in general. But the main issue is protecting the vulnerable. It's easy to say some IT wallah expert in Windows 94.765 can fend for himherslef,
but for a toilet cleaner in my office complex with little command of english, possibly still drying his feet off from Dover beach it's more complex. He needs protecting from unscrupulous cashinhand employers. Obv ir35 is not the way to do it, but the ideas for changing it need to take account of this - maybe base something on contracts below NMW+20% are automatically Employees, and above that there's an election regime?

Thanks (1)
Replying to abelljms:
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By johnjenkins
23rd Apr 2024 11:09

The point I am trying to make is that HMRC is systematically trying to destroy the small business because that's where they see the mythical "tax gap". You really do have to ask the questions - what is AML, RTI, auto enrollment, IR35, MTD and no doubt some that I have missed, it for? Certainly not to help small business (these things don't make an iota of difference to large companies until the audit goes wrong). Those that I have listed are purely devised to cause the small business the most amount of disruption and cost so that people come to the conclusion that it's not worth it. Have a look at all the people retiring early. I wonder why?

Thanks (1)
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By carnmores
20th Apr 2024 10:40

backdated precedence that a new one lol?

Thanks (2)
the sea otter
By memyself-eye
20th Apr 2024 11:47

As I understand (ha- does anyone understand IR35) this, MOO exists in any relationship where work is offered and accepted - regardless of the underlying 'contract', and if MOO exists then IR 35 applies?

Better not buy a beer at Wetherspoons tomorrow then as that will create 'work' for the bar staff...

IR35, nonsense heaped on nonsense ad infinitum !

Thanks (9)
Replying to memyself-eye:
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By vstrad
22nd Apr 2024 10:59

That's how HMRC would like it to be understood. I like to think of MOO like this:
Workers turn up at the factory one day to find there's a power cut. Everyone gets sent home. Employees get paid, because there's an obligation on the employer to provide work for employees who are available for work. Contractors don't get paid because there's no MOO.
It's not difficult.

Thanks (4)
Replying to vstrad:
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By abelljms
23rd Apr 2024 07:32

Well you're not totally 'accrat' on MOO, as if the power cut means staff get sent home they usually only get their contracted rate, which might be 60-80% of normal earnings due to overtime, production target bonuses etc.?
And often the Contractor has more freedom to make his billings up on subsequent days due to their freeer status.

Thanks (0)
Replying to memyself-eye:
Rebecca Seeley Harris
By Rebecca Seeley Harris
22nd Apr 2024 11:07

That's half correct. What the courts are saying is MOO exists in a contractual relationship but that does not necessarily mean that it is a contract of service. You then have to look at the other elements of employment status and the terms of the hypothetical contract to establish whether IR35 applies or not.

Thanks (1)
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By cereus77
22nd Apr 2024 10:23

Poor guy. It’s taken HMRC five years to get round to putting him through it all again. Really quite unnecessary and disgraceful - must have cost the taxpayer far more than the 240k they are claiming already. They treat a one man band in the way they ought to treat a massive corporation but we know that won’t happen because they have deeper pockets and far greater legal resources.

Thanks (10)
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By Springfield
22nd Apr 2024 11:06

We've been watching recently the Post Office Inquiry where documents provided to the Inquiry and witness evidence show that part of the PO's strategy in the GLO was to do everything possible to delay and stall the process until the SPM's ran out of the funds available to them, to force them to fold, or settle for a lesser amount.

Are we seeing something similar here? Even if you think it's important to examine the minutiae of every IR35 detail of every single IR35 case can it possibly be in the public interest for this extended and expensive process (FTT to UTT back to FTT) to continue?

As I've always said, there is no jeopardy for HMRC in using the apparent bottomless purse of public money to pursue these cases to the nth degree.

Thanks (4)
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By JackH
22nd Apr 2024 11:44

These types of cases, and those about employment income, expenses and PAYE, should have a much shorter appellate structure if the taxpayer so chooses e.g FTT and UT or FTT and EWHC (or Scottish and NI equivalent) and without any costs award, so he/she has only own costs to consider. Non-reporting of such cases too (save for the FTT's own purposes in deciding future cases) would prevent notoriety for the taxpayer and an unfavourable precedent for HMRC. HMRC could translate a favourable precedent anonymously into its Guidance, which has now become almost a source of law for taxpayers and advisers. Unless it disappears without warning like the CG Manual just has!

This would stop HMRC visiting vast costs on a few taxpayers to clarify the law. As every rookie lawyer knows, new statute law can rarely foresee its every possible future application. The remedy is for the Big Battalions, HMG and HMRC, to change the law if and as soon as a factual situation comes to their notice which they did not expect and would have provided for if they had. It is not right for HMRC to act out their floodgates paranoia by taking 5 years plus to learn "what Parliament meant" (and it doubtless never thought about the particular issue at all) which our system dumps ultimately on the judiciary (Eton Balliol and The Guards).

And remember. Much time will have already elapsed before the FTT hearing in correspondence and preparation. An appeal from the Tribunals to the Court is only on a point of law, unless they have hopelessly misdirected themselves when deciding the facts, and these cases are highly fact-dependent so that's often 90% of the job done. The Big Battalions who make and change the law should act more responsibly more often, take a defeat and change it. Because case law decisions are declaratory of what the law has always been they are in effect often retrospective, which tax legislation is only very rarely by established convention and to usually override major league avoidance.

HMRC is a party to every case of tax litigation. That is unavoidable but what isn't is "Punk Litigation":
1 Using that unique knowledge to game the list so that the first case off the blocks for a decision is the weakest for the taxpayer that they know about;
2 Having a settled position on a point of law and not publicising it in order to ambush the taxpayer with it in an enquiry (see SDLT MDR and what characteristics a "dwelling" must have, given HMG had, deliberately or not, omitted any definition in the statute);
3 Blackmailing (no need for it to be overt) the taxpayer with the prospect of interminable appeals with all the delay, hassle, risk of huge costs, and (often very potent) unwanted publicity.

None of that appears in the HMRC Propaganda Bulletin " Litigation and Settlement Strategy" replete with oleaginous bogus piety and lauding their preference for the collaborative approach (as in Ukraine).

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By abelljms
22nd Apr 2024 12:22

The article is a bit confusing, as I'm not clear if Alcock won his ir35 first time, and now 5 years later it's being reversed? - seems unfair for a 5 year delay, or was there other stuff going on that we don't know about.

Thanks (1)
Replying to abelljms:
Rebecca Seeley Harris
By Rebecca Seeley Harris
23rd Apr 2024 11:21

Alcock won his case at the FTT in 2019. HMRC appealed it to the UT. The UT have agreed with HMRC but, have sent the case back to the FTT to remake the decision with further guidance. Hope that helps...

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Replying to seeleyharris:
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By FactChecker
23rd Apr 2024 17:13

So, really kind of a 'double' slap-in-the-face for the taxpayer?

Translation for the taxpayer:
1. Remember that sense of relaxation when the sword of Damocles was removed and no longer hung over your head? Well stop relaxing, like Arnie it's back!

2. Oh and did I mention? You're going to have to fight your corner all over again - and yes that does mean more lawyers' fees from an open-ended sack of mythical gold that you don't possess.

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By moneymanager
22nd Apr 2024 16:53

Magna Carta, 'To no one will we sell, refuse it deny, right or justice'

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