IT contractor Richard Alcock of RALC Consulting has won his IR35 case against HMRC’s army of lawyers with a two man defence team led by tax expert Chris Leslie from Tax Networks with assistance by IR35 expert Dave Chaplin, CEO of ContractorCalculator, in what could be called a “Chris & Dave V Goliath” battle!
Calling themselves “Team RALC” they won the case based on the key tests of IR35 status known as Mutuality of Obligation (MOO) and Control. The comprehensive ruling should be seen as a defining blueprint to enable all project-based contractors to operate compliantly outside IR35.
Mutuality of Obligation is one of the essential tests of employment status examined by all tax tribunals in IR35 cases to establish whether a contractor is in fact a disguised employee and therefore subject to the provisions of IR35.
Team RALC’s succinct arguments for the lack of sufficient mutuality of obligation was accepted by the tribunal who agreed with the team’s submission, which said: ‘There is a very clear distinction here. And Mr Alcock is clearly self-employed, because he fits the latter sequence of events. 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.
‘There is no question at all that he could charge just for making himself available, and neither was the client obliged to give him work or allocate work – the work has already been agreed upfront.
‘So, since there was no minimum obligation to provide work and no ability to charge for just making himself available, it is clear that the key elements of mutuality, in the work/wage bargain sense, are missing, and therefore he cannot be considered an employee.’
Commenting, Dave Chaplin said:
“HMRC should have spotted that IR35 clearly did not apply from the outset. In my view the investigation was not conducted in a balanced manner and HMRC cherry picked from evidence that they wrote themselves and which had not been corroborated. It demonstrates a clear investigative failure by HMRC.
“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, HMRCs online assessment tool – because this essential employment status test is still missing from their tool.”
The fallout from HMRC’s tool recently made headlines as NHS Digital, who used CEST for its determinations, was landed with a bill by HMRC for £4.3m.
“HMRC’s tool is demonstrably not fit for purpose, omits essential areas of law, and is risky for businesses to base decisions on. It should be withdrawn with immediate effect.
“Worryingly, in the last few weeks we have heard many of the large financial institutions announcing that they will no longer hire contractors who work via limited companies from February 2020 ahead of the new reforms hitting the private sector in April. Some have said that they will not use consultancies that provide their services using limited company contractors.
“The RALC ruling demonstrates that those companies’ policies are misguided, and the details of this case provide a blueprint for exactly how firms can operate compliantly. HMRC and the Treasury have always stated that the Off-Payroll rules should not impact the genuinely self-employed, and this case supports that. In this instance, all they have done is to waste taxpayers’ money on a meritless case and shattered the dreams of a small business person who wanted to get on in life.”
Richard Alcock was relentlessly pursued by HMRC over the last few years in the run up to the verdict. Because of this his dreams of building a business have been curtailed and he has now returned to permanent work. Ironically, he now generates less tax for the Treasury than he did before.
Chris Leslie of Tax Networks added:
“In my view HMRC’s case was disproportionate, largely dependent on asserted facts involving weak and uncorroborated information. HMRC was given an opportunity to close this case on several occasions but chose not to do so. The matter of Rule 10 costs was flagged to the Tribunal. Team RALC faced an inequality of arms throughout these proceedings but justice prevailed and we won the day.”
Richard Alcock of RALC Consulting 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. I should never have had to go through this in the first instance. I cannot thank Chris Leslie and Dave Chaplin enough for all their help and support – they saw the injustice from the outset and together we took on HMRC and won.”