In RALC Consulting v HMRC [2019] TC7474 the First Tier Tribunal found that IR35 did not apply to an IT contractor; there was no mutuality of obligation, or real control.
The IR35 rules provide for employment taxes on a Personal service company (PSC):
- Where if engaged directly, under the contracts in place, the worker would have been an employee of the end client.
- The PSC must treat the amounts received as employment income of the individual and apply PAYE.
Richard Alcock supplied IT services to the DWP and Accenture through his own company.
- HMRC assessed the company to PAYE and NIC stating that the contracts were caught by IR35.
- The company appealed.
Key features of his contracts and how they worked in practice:
|
Personal Service Company |
RALC Consulting Ltd (RALC) |
|
End client |
DWP and Accenture |
|
Finding by FTT |
Not within IR35 |
|
Mutuality of Obligation (MOO) |
None. No minimum amount of work to be provided and he could refuse work offered. |
|
Substitution |
Fettered right, which was never exercised. The clients could decide whether or not to accept substitutes offered. |
|
Control |
Not by end client, he had a “fair degree of autonomy”. He could and did work from his own premises |
|
Salient features of relationship with end client |
No exclusivity, he could work for other end clients and did. |
|
Other points |
Contract could be terminated at any time for any reason; this had happened in practice No holiday or sick pay or pension Fixed term contracts or 3 or 6 month with daily rates of pay He had his own commercial premises |
The FTT, who said it had “stood back, considered all the relevant circumstances including “painting the picture” and taken into account whether Mr Alcock was in “business on own account” ", found that the contracts were not under IR35.
- They placed great emphasis on MOO even stating that it overrode the fact that the fettered substitution clause pointed to employment.
- They said Mr Alcock had substantial control, both through the rights in his contracts and exercised in practice, over how he was to perform his services for his clients.
Comment:
The emphasis given to mutuality of obligation is at odds to HMRC Check Employment status tool which does not recognise it as factor to consider.
From a procedure perspective, the judge refused to accept one of Mr Alcock's expert witnesses as he did not believe they were qualified and also refused to admit late evidence produced by Mr Alcock during the hearing. None of this seems to have had a detrimental effect in the end as the facts more than adequately supported his case.
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Personal Service companies and tax
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