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Contractor defeats taxman in £240k IR35 case

HMRC suffers blow as contractor successfully appeals IR35 ruling

An IT contractor has beaten HMRC in an IR35 Tribunal carrying £243,324 in liability, to inflict yet another defeat on the tax office. 

After an investigation lasting five years, it was decided on 29th October that IT consultant, Richard Alcock, had successfully appealed his IR35 case, meaning he will not need to pay this eye-watering sum to HMRC.

This was after the tax office had claimed Mr Alcock should have been operating inside IR35 on a number of engagements held between 2010 and 2015, whilst working with Accenture and the Department of Workplace and Pensions (DWP). 

Mutuality of Obligation pivotal

Mr Alcock’s appeal was said to have been won largely on the fact that Mutuality of Obligation (MoO) was not seen to be present. MoO is the obligation that a business has to provide paid work and the obligation that an individual has to accept it. In an outside IR35 engagement, it’s important that MoO isn’t present – as was decided in Mr Alcock’s case.

Chris Leslie of Tax Networks, who represented Mr Alcock, put this into context: “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.”

Final nail in CEST’s coffin?

Due to the fact that MoO didn’t exist in Mr Alcock’s contracts, the reliability of HMRC’s IR35 tool, CEST, has been called into question yet again. This is because MoO – one of the key IR35 status tests – isn’t included in CEST, with the tool working off the basis that it’s present in all engagements. 

Contractor Calculator’s Dave Chaplin, who also worked on Mr Alcock’s case, said: “What’s more striking is the fact that the case was won primarily on Mutuality of Obligation, which should surely now be the final nail in the coffin for CEST, HMRC’s online assessment tool – because this essential employment status test is still missing from the tool.”

HMRC’s “bullying” resulted in “immense pressure” 

Speaking about his experience at the hands of HMRC, Mr Alcock criticised the taxman for placing “immense pressure” on him and his family, before going on to say: “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. I should never have had to go through this in the first instance.”

Having been “relentlessly pursued by HMRC over the last few years in the run up to the verdict”, Mr Alcock has now returned to permanent employment – a move which Contractor Calculator said means he “ironically generates less tax for the Treasury than he did before.”

By Contractor Weekly

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14 thoughts on “Contractor defeats taxman in £240k IR35 case”

  1. Like!! I blog quite often and I genuinely thank you for your information. The article has truly peaked my interest.

  2. David Franks

    I really feel for this chap – the pressure that HMRC must have put on him and his family pursuing this huge sum of money.

    And yet the Amazons, Googles of this world get away with paying a pittance in tax, it’s disgraceful

  3. Mike

    Is there a way of finding out how much these failed cases cost the public purse?

  4. anon

    About time! When are polititions going to stand up and talk about this issue that is killing the UK economy; the fear now instilled in small to medium companies around IR35, coupled with the likes of the big banks taking a ridiculous stance on the flexibility to use a contractor work base, means that coupled with Brexit uncertainty, firms are posponing projects and putting off growth in the economy. As an out of work contractor (two months looking for work), where are HMRC with their ‘mutuality of obligation’ during the lean times us contractors struggle? Project stalls, coupled with a glut of contractors being let go based on fear is now reducing the overall tax income for HMRC! I too am now considering permanent roles to keep the wolf from the door, which means less revenue to HMRC overall….a sickening short sightedness…

  5. anon

    About time! When are polititions going to stand up and talk about this issue that is killing the UK economy; the fear now instilled in small to medium companies around IR35, coupled with the likes of the big banks taking a ridiculous stance on the flexibility to use a contractor work base, means that coupled with Brexit uncertainty, firms are posponing projects and putting off growth in the economy. As an out of work contractor (two months looking for work), where are HMRC with their ‘mutuality of obligation’ during the lean times us contractors struggle? Project stalls, coupled with a glut of contractors being let go based on fear is now reducing the overall tax income for HMRC! I too am now considering permanent roles to keep the wolf from the door, which means less revenue to HMRC overall….a sickening short sightedness…

  6. David

    Unfortunately this is all slowly becoming irrelevant, as many (if not most) employers are now putting contracts inside IR35 because they don’t want the risk of either attracting the HMRC gaze (and potentially having all sorts of things uncovered by an audit), or having to pay the tax bill of individual contractors if a role fell under future changes to IR35.
    It’s pure bullying and scaremongering.
    Their long term goal is clearly to remove the contractor segment of the professional market.
    Unfortunately this reduces market growth (and inevitably competitiveness) by removing the ability of many companies to remain flexible in line with market changes.

    • Andy

      Agreed that the rug is being pulled from beneath us due to the potential of blanket decisions, but will organisations also be prepared to do the diligence on the actual contract and ensure that MoO does not exist.
      Surely signing a contract to sign that has no MoO but deemed to be inside IR35 would be ripe for a challenge.

    • John

      So, all that’s required is for the client & contractor agreeing on regular and deliverable chunks of work…
      It’s more paperwork, but essentially the IR35 problem is solved ?

  7. HMRCunts

    HMRC are a cancer to society.

    They would have the entire country working for nothing if they could get away with it.

  8. Richard

    What puzzles me most about the Ir35 thing is that no one in HMRC seems to have done the maths taking the whole picture into account. Inside Ir35, same rate => contractor income falls, spends less, pays less Vat on goods bought. And less corporation tax. Or rate rises to compensate => the client pays less corporation tax. Seems no real gain to HMRC either way.

    Then again, I’m not really surprised.

    Then again, I’m not really surprised.

  9. Do No Harm

    Sadly HMRC are a huge jobsworths, beauracratic, none thinking, undemocratic, self sustaining institution… therefore this comes as no surprise

    In these circumstances they will never have any abilty to learn from these perpetual outcomes of which they are the cause

    Low hanging fruit is their target in the main… utilising threat and menace as their modus

    They do not possess the ability or courage necessary to go after the big guys i.e., Google, Facebook et al

    This poor man should be compensated for his 5 years of harassment… by god he needs it!

    • Navneet

      HMRC cannot take Big companies because they know that they will be beaten to death if they take fight big companies like Microsoft, Google and Apple as they are capable of hiring highly qualified and experienced lawyers and HMRC cannot stand in front of them. So, they are coming after small contractors as they can scare individual contractors who cannot afford to fight with HMRC and either end up paying hefty fines or ending their lifes both ways satisfying HRMC’s ego.

  10. Hell in a handcart

    HMRC are an absolute embarrassment, on par with Southern Fail, our Government and the climate mess we’re in – £250k they were chasing, wtf!! I hope this chap and his family can move on and recover – I’m sure they’ll be getting a sum of compensation for all the mental stress they have had to endure for the last 5 year just because he was working his nuts off for the gov’t!!

  11. CESTwhatisitgoodfor

    As in below comments would be interested in an estimate of HMRC internal bill for the 5 years. Can’t imagine that cost warranted the £243k tax bill they were chasing…more so once HMRC’s IR35 success rate is factored in.
    Can any of the ex-HMRC inspectors comment on how HMRC approach winnability of a case? It doesn’t seem to bear any resemblance to the way CPS make assessments of wether a prosecution is in the public interests.

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