IR35: Consultant wins case over DWP work
An IT contractor has defeated HMRC at tax tribunal after the Revenue deemed his company liable for £243,000 under IR35 legislation.
Richard Alcock supplied IT services through his company RALC Consulting Ltd to the Department of Work and Pensions (DWP) and Accenture, which HMRC asserted should be caught by IR35.
The case (TC07474) ended up at first tier tax tribunal (FTT), which concentrated on three specific aspects: mutuality of obligation (MOO), substitution and control.
There was significant discussion at the FTT on the point of mutuality of obligation, which is surprising because the considered view of HMRC is that it is not a relevant factor for tax purposes, and MOO is not considered in the CEST test.
As with all IR35 cases, the tribunal had to weigh up all the factors and decide whether a hypothetical contract between the worker (Alcock) and the end client (DWP or Accenture), would have the qualities of an employment contract or not.
The FTT made the following observations on the basis that the hypothetical contract was in place:
There was no mutuality of obligation between Alcock and DWP and Accenture expressly stated this in the contract.
There was no obligation for Accenture or DWP to provide a minimum amount of work (number of days or hours) to Alcock during the course of the contract or thereafter.
There was only an obligation for both Accenture and DWP to pay Alcock if work was offered and undertaken. Alcock could refuse to accept work from each, but if he unreasonably failed to accept work offered the contract could be terminated.
No notice was required to be given by DWP and 30-days’ notice by Accenture to Alcock. Notice could be given without reason.
No paid notice would be given from either client nor would Alcock have the right to claim payment for work done outside of the cancellation of the contract. The contract could be cancelled at any time for any reason.
There was a fettered substitution clause in both the Accenture and DWP contracts, such that each client had the ability to consider and decide whether to accept substitutes offered by Alcock based on the suitability, qualifications and expertise of the substitute.
There was no significant control over what work Alcock performed and how he did so within the specific Accenture and DWP’s projects for which he was contracted, so long as he enabled the ultimate outcome to be delivered in collaboration with their teams.
Alcock was to collaborate with his clients to agree the best way to deliver those parts of the project for which he (or his team) was responsible.
Work for both Accenture and DWP was conducted mainly within business hours for an average of 40-45 hours per week, but the contract specified a working week with variable hours and provision to provide variable cover, in case Alcock was indisposed.
Alcock had to give advance notice to both clients of any holidays or non-working days he was taking, but that notice could not be unreasonably refused.
Place of work
The work was conducted by Alcock at the clients’ offices unless working at home or outside reasonable hours.
Alcock had to inform his clients of when he was working from home but they could not unreasonably refuse to let him do so.
Alcock was permitted to work for other clients during the course of contracts with both Accenture and DWP so long as this did not interfere with the delivery of his projects within each of their assignments.
Employee benefits and obligations
Alcock was not entitled to sick pay, paid holiday or pension entitlement from either Accenture or DWP.
He was also not required to attend internal meetings at his clients which were not specific to the delivery of his specific projects and had no financial responsibilities, accountability or obligations for either DWP or Accenture.
Part of the organisation
Alcock did not hold himself as working for either DWP or Accenture. There was no intention that they should be considered his employer. Alcock could not represent, deputise or act on behalf of the clients.
Alcock had no responsibility or obligation for training himself or others. He had no HR, pastoral or wider management responsibilities than those necessary to collaborate on projects. He was not subject to nor responsible for disciplinary procedures for either DWP or Accenture.
The contracts for DWP and Accenture were for fixed terms and based upon delivery of specific projects rather than filling specific job roles or positions.
The pay was at an agreed daily rate of pay, which left Alcock to deliver the projects, effectively and efficiently.
Alcock was liable in certain circumstances in negligence to the Accenture and DWP for errors committed and in relation to DWP, and he had to remedy any errors at his own cost. Alcock paid for his own professional indemnity insurance.
The decision was made in favour of the taxpayer on the balance of the evidence, but that decision could come under the microscope if the case is taken to appeal at the upper tribunal to determine whether the right weight was applied to the particular facts.
We don’t know if HMRC will appeal this decision. However, I am sure this will not deter HMRC from taking cases where there is a possible IR35 failure.
It is important for those who take cases to tribunal to follow the rules on the use of experts and the submission of documents, as demonstrated by three points in this case:
- HMRC said it may consider the issue of carelessness to be in point if the contractor had failed to seek professional advice or that the accountant acting for the contractor did not carry out a review of the contractual terms under which his client had been engaged.
- On the day of the hearing, the taxpayer tried to submit additional evidence in the form of emails but these were not accepted as evidence as they had not been provided within the timeframe permitted under rule 15 of the Tribunal Procedure (First-tier) (Tax Chamber) Rules 2009.
- The taxpayer had intended to call a person to act in the capacity of an expert witness on IR35, but the judge did not believe the person concerned was qualified to give such an opinion.
You might also be interested in
Alastair is a leading expert on employment tax, IR35 and international fleet issues. He has considerable experience of all aspects of company car taxation. He is still heavily involved in issues relating to employee car ownership schemes and salary sacrifice.