HMRC criticised for pursuing “weary contractors using taxpayer’s cash” in aggressive pursuit of contractor
An IR35 case settled in 2019 may soon be reheard, with HMRC successfully appealing the ruling reached by the judges five years ago.
Richard Alcock, IT contractor and director of RALC Consulting, had previously been issued with determinations by HMRC that he had incorrectly operated outside of IR35, with a tax liability of £243,324.
He successfully appealed this at a First Tier Tribunal in 2019. However, HMRC’s appeal at an Upper Tier Tribunal against that decision means he may have to return to the FTT to argue his case again.
The uncertainty around if or when the case will be heard is due to the fact RALC Consulting has reportedly ceased trading in the years since its appeal was upheld. Speaking to Contractor Calculator. Mr Alcock said RALC “looks like it will become insolvent” as a result of the Upper Tier Tribunal’s decision.
This uncertainty is compounded by the fact that the events in question took place between 10 and 15 years ago, with HMRC’s investigation covering RALC’s activities during the 2010/11 to 2014/15 tax years.
How the case was decided
Those activities under particular scrutiny were contracts held between RALC and Accenture, and RALC and the Department for Work and Pensions.
Mr Alcock had operated outside IR35 in these engagements, though HMRC believed that the working practices resembled employment; as a result, the tax authority argued, the engagements fell within scope of the legislation.
However, the First Tier Tribunal ruled that the IR35 legislation did not apply to his contractual arrangements. This was because, on examining the contracts and working practices, there was no Mutuality of Obligation between the parties, and nor was there a requirement for personal service.
HMRC appealed, arguing that the tribunal judges had made “material errors of law” in reaching their conclusion. Five years on, the Upper Tier Tribunal has agreed with HMRC, setting aside the decision reached in 2019 and sending the case back to the First Tier Tribunal to be reheard by a new panel.
‘No winners here’
Speaking to Contractor Calculator after the latest ruling, Mr Alcock said it would be “impossible” to contest another hearing and to “locate witnesses for events that happened 14 years ago”.
He added that RALC “ceased trading due to the toll of this decade-long IR35 issue”.
“If IR35 had not got in the way, I have every confidence I would now be leading a successful company. There do not appear to be any winners here”, he said.
Andy Chamberlain, Policy Director at IPSE, said the case was “yet another example of HMRC winning an IR35 dispute by default”.
“Government’s willingness to outspend weary contractors using taxpayers’ cash carries a clear message to businesses dealing with the off-payroll rules today”, he said. “Work with contractors, and risk a dispute you can’t afford to win”.
“Having defended IR35’s flaws to the hilt, the government’s strategy has been to leave it to the courts to deal with the confusion. But as RALC’s inability to go on defending itself proves, this is getting us nowhere”, Chamberlain concluded.
This is a relentless abuse of power and position at the expense of the tax man. I broke no laws and made my tax return every year, but they didn’t like the ethics!. They eventually ground me down until you run out of fight and then offer you a way out through settlement. I settled a considerable 6 figure sum, which probably didn’t cover their costs but they see it as a victory! This is the only way it stops!.
This case is a disgrace. HMRC has 6 years to raise a case originally (unless fraud is suspected, which isn’t the case here). So there needs to be some similar “statute of limitations” in cases where they have heard a case once. After 15 years that’s 2.5 times the 6 year limit – but because it’s been heard once, back in the mists of time, they can re-open it forever?
There’s no hope of change here until we have a sea change in politics (not any of the Tories, Labour or Lib Dems in govt). That will tajke a few years.
In the meantime, we have a PM whose family business has a vested interest in nobbling their one-man band competition. Does anyone really believe that with his father in law being co-founder of Infosys, the 2nd largest Indian IT consultancy, there’s no conflict of interest? Yeah, right, pull the other one.
The fact that HMRC, tribunals and the courts get this wrong so often demonstrates that it is bad law with very uncertain outcomes.