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HMRC loses IR35 Tribunal carrying £240,000

"Their bullying tactics have been extremely stressful"

HMRC has suffered an IR35 Tribunal defeat, losing a case against an IT contractor who the tax office was pursuing for more than £240,000.

IT consultant, Philip Alcock’s working engagements, which spanned from April 2010 to April 2015, took place at Accenture and the Department for Workplace and Pensions (DWP), the former of which Mr Alcock was an employee of.

To an extent, the fact that Mr Alcock was once an employee of an organisation he then contracted for looks to have given HMRC the incentive to argue that the relationship he held still reflected employment, meaning it belonged inside IR35. 

However, the Tribunal Judge firmly disagreed that Mr Alcock was motivated to become a contractor in order to avoid tax, stating: “The tribunal does not accept HMRC’s submission that the long history of Mr Alcock’s previous engagement and operation of this contract in practice led to an expectation that Mr Alcock would be provided with work every business day during the course of an assignment.”

As a result, the £243,324 that HMRC was demanding Mr Alcock paid them in National Insurance contributions and income tax will be cancelled.

MoO held the key

That there was no expectation from Mr Alcock to be offered work by his clients and accept it was the crucial factor in the tribunal deciding that his various engagements were outside IR35. Therefore, it was Mutuality of Obligation (MoO) that held the key to this contractor’s successful appeal. 

Despite having previously been an employee of Accenture, it’s clear that when Mr Alcock started contracting through his personal service company, the nature of his working relationship changed from a ‘contract of service’ (employee) to a contract for services (genuine contractor), which was deserving of outside IR35 status.

The team that represented Mr Alcock’s limited company, RACL Consulting, had their argument accepted by the tribunal that MoO didn’t exist beyond the irreducible minimum. 

Dave Chaplin of Contractor Calculator and Chris Leslie of Tax Networks, explained: “Mr Alcock is clearly self-employed. 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.”

Mr Alcock also demonstrated that MoO wasn’t present, by including in his submission that when his company stopped working with Accenture, he “was not paid for around 10 days” and his contract was “brought to an end in January 2013.”

CEST’s flaws exposed yet again

Given MoO played such an important role in ensuring Mr Alcock won this IR35 Tribunal, the taxman’s IR35 tool, CEST, has come under fire once again. Since its introduction in 2017, CEST has been criticised by IR35 experts because it works off the premise that MoO exists in every engagement. However, this case indicates that it doesn’t and that to rely on the tool when determining IR35 status poses a significant risk - not just to contractors, but to end-clients and recruitment agencies also.

Contractor forced to return to employment 

It has been said that as a result of the stress Mr Alcock faced during the investigation, he has now returned to permanent employment. In reaction to successfully appealing the case, Mr Alcock said: “The pressure on me and my family has been immense. I cannot understand why HMRC pursues contractors so much. Their bullying tactics have been extremely stressful, made all the more difficult to bear since the verdict has ruled in my favour.” 

According to The Register, HMRC has said it “is disappointed with the decision of the tribunal and intends to appeal.” 

With over 25 years’ experience, Qdos is a specialist contractor tax, IR35 and insurance adviser and we review on average, over 2000 contracts every month. Since 2000 and the introduction of the IR35 legislation, we have handled more than 1,600 IR35 enquiries, saving UK contractors over £35million in tax. 

By:Benedict Smith

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