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Another IR35 loss for HMRC

Newsletter issue - January 2020.

HMRC have faced another defeat in a tax case involving the IR35 intermediaries' legislation. In RALC Consulting Ltd v HMRC (2019) TC 07474, the First Tier Tribunal (FTT) allowed an appeal against HMRC's determination that IR35 applied because of a 'hypothetical contract' between various parties making up a service provider chain lacked the requisite 'mutuality of obligation'.

RALC Consulting Ltd (RALC) (the appellant), was the personal service company (PSC) of IT consultant Richard Alcock, who was the company's sole director and shareholder. During the tax years in question, RALC Consulting Ltd contracted with Mr Alcock's former employer Accenture UK Ltd (Accenture) and with the Department for Work and Pensions (DWP), a client whose projects Mr Alcock had previously worked on, to provide Mr Alcock's services working on a large IT project.

The contractual arrangements entered into by the appellant with Accenture and DWP were four-party chains, namely Mr Alcock, RALC, an agency, and the end clients. HMRC contended that as Mr Alcock had carried on working for his previous employer an 'expectation of continued work existed'. The FTT, however, did not agree with HMRC';s submission that the long history of Mr Alcock's previous engagement and operation of the contract in practice led to an expectation that Mr Alcock would be provided with work every day during the course of an assignment, such that it amounted to a legal obligation.

The FTT looked not only at the terms of the contract but also at their application in practice and concluded that it was not satisfied on balance that sufficient 'mutuality of obligations'; existed between Mr Alcock and the end clients in the hypothetical contracts to establish an employment relationship. Since there was no minimum obligation to provide work and no ability to charge for just making himself available, the FTT found that the key elements of mutuality, in the work, or wage bargain sense, were missing, and therefore Mr Alcock could not be considered an employee.

The Tribunal was satisfied that Mr Alcock had substantial control over his contracts and control over how he performed his services. The FTT also accepted that Mr Alcock's engagements permitted him to provide a substitute but the end clients had the right to refuse to authorise any substitute proposed if they were deemed unsuitable. Therefore, while it was a genuine right of substitution, it was a fettered right subject to the approval of his clients.

The FTT concluded that the intermediaries legislation did not apply as the hypothetical contracts with the end clients indicated 'contract for services', meaning Mr Alcock would have been self-employed. HMRC's determinations, decisions, and notices were cancelled. The appellant was not liable to pay income tax and NICs assessed by HMRC. The appeal was allowed in full.

The outcome of the decision in this case rested largely on the FTT's interpretation of mutuality of obligation. HMRC's interpretation that where one party agrees to work for the other in return for payment, satisfies mutuality of obligation between the two parties, was dismissed by the Tribunal. The appellant's circumstances were such that they were not caught by the IR35 legislation, and in turn, this outcome now throws further uncertainty into the IR35 framework.

Soon after this decision was released, HMRC updated its online Check Employment Status for Tax (CEST) tool. Whilst the tool does have flaws, it is generally held that if CEST gives the required answer then it can be relied upon, at least until circumstances change or it is challenged by HMRC. But if CEST does not give the required answer then an employment contract review is recommended.

Addlestone Office

Another IR35 loss for HMRC

Andrew has been working in accountancy practices since leaving school at 16 and has over 30 years of experience dealing with all aspects of small and medium size businesses, personal and corporate tax issues.

He has been a partner since 1995 and has a wide and varied general practice background.

Andrew has extensive knowledge of many areas of business, accountancy and tax and is able to draw on his experience and knowledge to give clients comprehensive advice on a wide range of matters.


Another IR35 loss for HMRC

Keith joined Turner Hampton in May 2001, as tax partner. He qualified with a medium sized provincial firm in 1994 before moving to the City to join a top six firm where he specialised in multi-national partnership tax.

He has a wealth of experience in dealing with small owner managed businesses through to larger national organisations and those with interests abroad.

Keith, currently oversees the personal tax and corporation tax compliance and planning strategies of taxation for our clients.


Another IR35 loss for HMRC

Marc joined the accountancy profession in 2006 and trained with a top 50 firm before qualifying in 2010. Marc joined Turner Hampton in the same year because he was excited about the challenge of taking on a more hands-on role with clients.

Marc’s focus is on helping individuals with their businesses – from sole trades to large corporates – and guiding them through the red tape that often comes with accounting. Marc enjoys helping clients spot opportunities that can contribute to their businesses being successful, and assisting them with the real nitty-gritty, without losing the overview. Marc gets the biggest pleasure from his work when he is able to help clients save money or achieve something they may be striving towards.

Outside of work, Marc enjoys watching and playing all sports, listening to music, going to concerts and eating out.


Another IR35 loss for HMRC

Vaughn is an ACCA & AAT qualified accountant, Vaughn joined CSL in 2016 and believes his 17 years of experience has allowed him to gain a vast knowledge in dealing with all aspects of small businesses, personal tax and corporate tax issues.

Vaughn is a strong believer in building good client relationships. He feels that by understanding the specific needs of each client, he is able to offer more sound and efficient tax advice.

Outside of work Vaughn is a keen sportsman. If he isn’t enjoying time with his family, he can often be found walking many of Surrey’s local golf course fairways or attending sporting events.


Another IR35 loss for HMRC

Melanie joined CSL Partnership in April 2017 as a senior accountant. She is ACCA qualified with over 10 years experience working within practice. Melanie works with a wide range of clients and provides advice to owner-managed businesses and personal tax clients on accountancy and taxation matters.


Another IR35 loss for HMRC

Cindy joined CSL Partnership in 2007. She is an ACA qualified accountant with over 20 years of accountancy experience working within both practice and business.


Another IR35 loss for HMRC

Colin has worked in the accountancy profession for over 35 years during which he has gained a great deal of experience working on a diverse range of small and medium sized businesses along with sole trades and partnerships.

His areas of expertise lay within accounting, auditing, personal and business tax matters.

He is passionate about the role which small and medium sized businesses play in today’s market and how the accountancy profession can best serve their needs.


Another IR35 loss for HMRC

Carole has been a bookkeeper and payroll clerk for over 25 years and is qualified by experience. She has recently become involved in the process of auto enrolment for pensions. Over the years she has been self-employed but more recently employed in accountancy practices around the area.


Another IR35 loss for HMRC

Karen joined the practice in early 2019 as our Administrator/Receptionist and brings 15 years previous experience to the role. She ensures the office runs smoothly and efficiently providing back up and resources to the professional staff allowing them to focus on client matters. Karen is a very cheerful individual and always happy to help. In her spare time Karen enjoys spending time with her family.


Another IR35 loss for HMRC

Martin joined CSL Partnership in November 2019 returning to practice after spending the previous 8 years working in Industry. He is an AAT qualified accountant and has spent over 20 years working in the profession.

Martin works on all manner of clients from sole traders to large limited companies. He is an avid user of new software and technology to improve how he and clients work together and will always look to find a way to make life simpler for the client so they can focus on running the business rather than stressing over the accounts.


Another IR35 loss for HMRC

Ian joined Turner Hampton in 2016 and has worked in the accountancy profession for over 30 years.


Woking Office

Another IR35 loss for HMRC

Emma has worked in accountancy practices for over 20 years and qualified as a Chartered Certified Accountant in 2000. She has gained experience in all aspects of the accounting and auditing functions, developing exposure to a broad range of clients.

Emma advises owner-managed businesses and personal tax clients on accountancy and taxation matters. She has a particular expertise on systems review and implementation.

She has worked for CSL Partnership since it formed in 2001, becoming a director in 2005 and now manages the Woking office.


Another IR35 loss for HMRC

Philip has worked in various accountancy practices since the age of 19 and joined CSL Partnership in 1998 where he qualified in 2008.

He works with individuals, sole traders and limited company businesses to assist them with all their accounting and taxation requirements.


Another IR35 loss for HMRC

Andy has worked in accountancy since 2010 and joined CSL Partnership in April 2018. He has experience in a wide range of sectors, and has enjoyed working with individuals, sole traders and limited companies of varying sizes and needs. Outside of the office, you’ll find Andy on a hockey pitch or listening to music.


Another IR35 loss for HMRC

Lesley joined Turner Hampton in 2003, having previously worked both in accounts departments and in practice. She has been running client payrolls since joining the company and has gained many years of experience in payroll. Lesley now processes all aspects of payroll for both Turner Hampton and CSL Partnership clients.


Another IR35 loss for HMRC

Gail joined the firm in May 2018 and has worked in accountancy practices as a bookkeeper and payroll clerk since 2013. Historically, Gail has been self-employed and worked for companies in the financial and customer service sectors.

She is a full member of AAT. When not working, she enjoys hiking, mountain biking and yoga.


Another IR35 loss for HMRC

Marrieclaire is a bookkeeper, she processes payroll and maintains the accounting records to prepare VAT Returns and CIS Returns. Marrieclaire is a qualified Chartered Management Accountant with varied industry experience.


Another IR35 loss for HMRC

Elaine joined in June 2017. Prior to this she worked in a number of different industries including fast moving consumer goods and mechanical & electrical consultants.

She is a fellow member of AAT having completed the qualification in 1997.


Another IR35 loss for HMRC

Natasha joined CSL Partnership in October 2019, having worked in accountancy since 2017. Natasha has experience completing payrolls, bookkeeping, VAT returns & CIS returns. She is currently a trainee accountant, looking to become qualified in the coming years.


Another IR35 loss for HMRC

Wendy joined CSL in April 2019 as a Part-Time receptionist and administrator after 25 years working as an office manager in the design world. She is more than happy meeting and greeting clients and working with such a great team of people in the Woking Office. In her spare time Wendy enjoys tennis, yoga and pilates.


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