IR35: HMRC loses £243,000 tax case

HM Revenue & Customs (HMRC) has lost a case against an IT Consultant that the tax body deemed liable for £243,000 in tax under the IR35 rules.

Richard Alcock’s appeal was allowed by a First Tier Tribunal following an appeal on a previous IR35 decision which ruled that he must pay tax and national insurance contributions (NICs) of £243,324.

IR35 was initially introduced in 2000 and aims to clamp down on tax avoidance. The rules apply to off-payroll workers such as freelancers and contractors that don’t come under HMRC’s definition of self-employed.

HMRC recently issued guidance for fee-payers, intermediaries and engagers to assist with the operation within the revised rules for off-payroll working, which come into effect on 6 April 2020.

The guidance states that in the case of a small private sector organisation, the worker’s intermediary (their personal service company) will determine the employment status of the worker to assess whether tax and National Insurance (NI) deductions should be made as if the worker was an employee.

Mr Alcock entered a number of contracts with the Department for Work & Pensions (DWP) and his former employer, Accenture, through his limited company, RALC Consulting Ltd.

Judge Rupert Jones dismissed HMRC’s argument that the contract did not lead to the expectation that Mr Alcock would be given work every day.

The case revolved around one of the essential tests of IR35 status – the mutuality of obligation (MOO) and control.

This establishes whether or not a contractor is a disguised employee, and should subsequently be subject to the IR35 regulations.

For help and advice on the upcoming changes to the IR35 rules, contact our expert team today.