Qdos client waits three years for HMRC to simply give up
Garry Philpot, director of Essex based company GMPFive Consulting Ltd (GMP5), finally had his IR35 torment ended quite unexpectedly when HMRC announced, completely out of the blue, they were giving up the fight.
The IR35 ordeal started for Garry in July 2015 when he received the dreaded enquiry letter telling him that HMRC were investigating his company’s IR35 position for the two years 2013/14 and 2014/15. During this time GMP5 had provided IT test management services to, of all organisations, HMRC, on their FACTA (Foreign Account Tax Compliance Act (US)) project. HMRC lacked the expertise that Garry possessed, hence the reason for engaging his company.
After responding to the initial enquiry letter, a meeting was held in December of that year between Qdos Contractor/Garry and HMRC to discuss the prevailing working practices. Then, in the early months of 2016, HMRC as the ‘Regulator’ wrote to HMRC the ‘end client’ to gather their version of events. The end client evidence supported the contract being outside of IR35, but enter the ignoble Status Inspector responsible for the Jensal Software shambles. Determined to ‘crow bar’ information out of the end client to make a case for IR35 sticking, he held a teleconference in June of that year, with three Revenue (end client) officials.
This partisan Status Inspector then issued his all too familiar and unsurprising ‘caught by IR35’ opinion in September 2016. To add greater credibility to our counter argument, I got Garry to ask an end client representative to answer some supplementary questions that would clarify some of the important areas of employment status. The response confirmed, amongst other things, that there existed a right of substitution. This however was quickly dismissed by the Status Inspector who, in typical fashion, twisted the facts to suit his own arguments. Our only hope of avoiding the matter ending up at Tribunal [we were not prepared to request Alternative Dispute Resolution because of the Status Inspector’s lack of integrity and absolute bias] was therefore to ask for an ‘independent’ review, albeit a most forlorn hope.
After wasting months and months of time trying to produce accurate deemed payment calculations, in November 2017, HMRC finally raised tax and NIC assessments for the three years ended 5th April 2016 totalling nearly £59K. However, even then the Section 8 NIC Decision had to be reissued because the Revenue had entered the wrong dates!
The ‘independent’ review was released in May 2018 simply upholding the original IR35 decision. These reviews are now becoming a waste of time and a fait accompli. Reviewing officers disregard any meaningful case law, particularly recent Tax Tribunal cases where their stock response is that such rulings do not set legal precedence and HMRC do not agree with the decision anyhow. So much for impartiality!
The execrable Status Inspector wasted no time in attempting to ward off GMP5 from progressing the matter to Tribunal, as in early May he sent out correspondence informing that he had met with representatives of HMRC Commercial Directorate who were responsible for the recruitment and engagement of contractors, and they had confirmed that for those contractors (note the plural) engaged under Contingency Labour One (‘CL1’) contracts:
- Personal service is a requirement for the duration of the contract;
- HMRC would not permit a substitute;
- HMRC have the right of control over how, what, when and where the work is done;
- Contractors are not required to provide their own equipment;
- Other than a requirement to have sufficient insurance cover in place, freelancers are not exposed to a financial risk; and
- No notice period either way.
Undeterred by this act of scaremongering, an appeal was lodged with the First-tier Tribunal towards the back end of May and so we waited for HMRC to present their Statement of Case.
Then completely out of the blue, only weeks ago, HMRC announced they were not going to contest the appeal and would be closing the case. Whilst this was music to both mine and Garry’s ears, it was totally unexpected because HMRC had a stronger case than they did in Jensal Software, albeit that I still believed that we too had decent prospects of success.
Readers may recall that, a few weeks ago, I reported that the Chartered Institute of Taxation had written to the Treasury Sub-Committee to express its concerns over HMRC’s apparent eagerness to litigate even where this was less than a 50% chance of successful legal action, thereby ignoring its own Litigation and Settlement Strategy [see ‘HMRC holding hands over their ears’]. Was HMRC’s actions in the GMP5 case borne out of a result of this or mere coincidence? The tribunal system is being bombarded with appeals, so it may be that HMRC are having to be more selective about the cases they choose to defend. The riddle will be unravelled in the ensuing months when their actions in other cases can be compared.
There is no doubt that HMRC’s decision to give up the fight came as a big relief to Garry as the stress caused by the enquiry and appeal was taking its toll on both him and his family. They remained strong and resolute however and Garry was determined to fight to the bitter end, and actually expressed some disappointment in not being able to have his day ‘in court’! I salute you Garry.
Andy Vessey is the Head of Tax at Qdos Contractor, and a regular contributor to Contractor Weekly. All facts of this case have been consented for release by the client defended in the case.