In HMRC v RALC Consulting Limited [2024] UKUT 00099 (TCC), the Upper Tribunal (UT) overturned a 2019 decision by the First Tier Tribunal (FTT) about the intermediaries legislation commonly referred to as IR35 which originally found in favour of the taxpayer. The case has been remitted back to the FTT which must now reconsider the arguments.

  • In quashing the original decision by the FTT the taxpayer is again at risk of having to pay a bill for £243,324.
  • The UT specifically explained the FTT should not infer that a correct approach to the construction of the hypothetical contract and proper application of the concept of Mutuality of obligations would mean that Mr Alcock should be regarded as an employee.
  • HMRC seem determined to get clear guidance on mutuality of obligations. Arguably this has already been given in the case of HMRC v Professional Game Match Officials Limited [2021] EWCA Civ 1370 (PGMOL), albeit that is awaiting a final judgement from the Supreme Court. 
  • Is it possible the work done by Mr Alcock was for the Department of Work & Pensions (DWP) and Police Scotland is a factor in HMRC's determination to be right?

RALC Consulting Limited (RALC) was Mr Alcock's Personal Service Company. There were three contractual arrangements under scrutiny; two with end client Accenture (UK) Limited and one with the DWP. These contracts spanned the period from November 2010 to February 2015.

Ground 1 of appeal: The FTT failed to properly identify the terms of the hypothetical contracts and to apply the common law test of employment status to those terms as required by legislation:

  • All parties agreed that an assessment for the intermediaries' legislation should follow the three-stage process set out by the Court of Appeal in HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501 (Atholl) namely:
    • Stage 1: Find the terms of the actual contractual arrangements and relevant circumstances within which the individual worked.
    • Stage 2: Ascertain the terms of the hypothetical contract postulated by the legislation.
    • Stage 3: Consider whether the hypothetical contract would be a contract of employment.
  • The UT found the FTT had not followed its own self-direction in applying Atholl
  • By so doing, the FTT had applied the test of mutuality of obligations to certain facts about the actual arrangements rather than the hypothetical contract.
  • The UT agreed with HMRC on Ground 1 of the appeal.

Ground 2 of appeal: The FTT erred in law in its approach to mutuality of obligation and then erred in law/reached a perverse conclusion about the facts of the case in considering mutuality:

  • Despite the UT's finding for Ground 1 it had to assume the hypothetical had been properly constructed in order to consider Ground 2.
  • In the case of  PGMOL, the possible difference in the relation of mutuality of obligation between an overarching contract and a single engagement was considered. It was concluded this mutuality is not the only determining factor.
  • The FTT had noted the lack of obligation to provide further work or to accept further work does not prevent mutuality of obligation existing within a specific engagement.  It also noted the lack of guaranteed minimum hours and the ability to terminate a contract at will are not inconsistent with this mutuality. But the FTT erred in not having regard to these points in their decision.
  • The UT found the FTT's decision was founded on errors of law and therefore did not look further at the other elements of Ground 2.

There were other grounds for appeal but the UT reached its decision based on 1 and 2 only and therefore did not need to consider the other grounds further.

The UT concluded there were material errors of law in the FTT's decision. They therefore set it aside and remitted the appeal back to the FTT. They acknowledged the difficulties this would cause, particularly to Mr Allcock. 

 Useful guides on this topic

How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Personal Service Company (PSC) tax
HM Revenue & Customs (HMRC) define a service company as a company that generates the majority of its income from supplying services rather than goods to clients. What is a PSC?  What are the tax implications for a PSC?

IR35: Off-Payroll Working
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?

Employment Status & detailed checklist
Why is it important to check my employment status? What tests should I use? What is the recent case law?

External link

HMRC v RALC Consulting Limited [2024] UKUT 00099 (TCC)