Kaye Adams’ IR35 win ‘could trigger backdated HMRC response, or new guidance for inspectors’

Kaye Adams’ IR35 win could trigger anything from a taxman who concedes -- to guidance at Spring Budget 2024 on how HMRC can counter such cases.

Contractors’ advisers are making these predictions in wake of Adams learning from the First-Tier Tribunal that the Revenue was wrong to deem her inside IR35.

But advisers aren’t the only ones who’ve been reacting since the court victory for the BBC Radio Scotland presenter, nullifying a reported £124,000 tax demand.

'Just pay your tax instead of avoiding it through loopholes'

On Twitter, formerly X, one user snipped at the 60-year-old that “maybe people should just pay their tax, instead of trying to avoid it through various loopholes.”

Following her vindication by the FTT -- representing the fourth court wrangle over her IR35 status, Adams responded by clarifying she won using “no loopholes.”

She also clarified on the social media platform that working via her own limited company was and is, “entirely legitimate standard practice in [the] freelance world.”

'Let sleeping dogs lie'

Yet even the ‘X’ user who Adams set straight is not going to be more irked at her IR35 triumph than HMRC.

Following HMRC’s disclosure to ContractorUK that it is “considering” the ruling in Adams’ favour “before deciding next steps,” a tax lawyer confirmed HMRC is permitted to go again.

“HMRC can seek permission to appeal,” clarified the lawyer, Rebecca Seeley Harris of ReLegal Consulting. 

“But [after four court showdowns already], one would hope that they [ - HMRC - ] let sleeping dogs lie”.

'Disproportionate obsession'

A track record against Adams of four tribunal hearings, with three finding HMRC was wrong, suggests it has a “disproportionate obsession”  with Adams’ status.

Kingsbridge manager Ryan Dawson fleshed out his assessment: “Time and time [again, in vain, they’ve argued] she should be inside IR35.

“During the last decade [pursuing Adams]…HMRC's estimated costs are almost four times the amount of the actual tax due. That’s frankly ridiculous.”

But while costs don’t apparently matter to the tax authority, winning does.

'HMRC are notoriously bad losers'

Bracing Adams and effectively everyone else for court wrangle number five over her status, tax dispute expert Graham Webber explained:

“[HMRC] will certainly continue in their efforts to prove their point because nobody in that organisation is accountable for the legal costs or the cost of the staff time.

“[Moreover] HMRC are notoriously bad losers. They are very reluctant to accept tribunal defeats, often denying the effect of decision in enquiry correspondence long after the judgement is made. It would be hopelessly optimistic to think that this reversal for them will cause them to re-think the strategy here.”

'Retrospective law'

Furthermore, quite apart from  any re-think, the blow which Adams has deal the department might inspire fresh guidance for its officials.

Or worse, continued Mr Webber, tax director at WTT Consulting, even a legislative response that gets backdated.

He reflected: “It would not surprise me to see retrospective law in this space  -- be aware we have a Budget [expected] in March.

“Nor [would I be surprised]…and it will be many months [from now if] guidance on how to adopt – more likely counter – the [Adams] judgment will be issued [by HMRC to its inspectors].”

'Some 17 OPWR checks by HMRC underway'

Perhaps even more unsettling for contractor limited companies is off-payroll checks by HMRC numbering 17 at one contractor services firm alone.

In an update on Friday, Qdos’s Nigel Nordone, said the sheer number of Off-Payroll Working Rules enquiries is “telling” about “how important HMRC sees this legislation.”

“Many businesses assume contractors only need their IR35 status assessed once, before engagement,” he said of the 17. “In reality, contractors should – in an ideal world – be re-assessed every six months.”

'A very different beast'

Qdos’s head of tax, Nordone said HMRC was showing a “growing interest” in how IR35 status decisions get reached, and how, such as CEST or an external IR35 contract review.

“The key takeaway…is that IR35 determinations must be made with ‘reasonable care’ – HMRC is scrutinising this closely,” said Nordone, formerly of the Revenue.

“Additionally, the element of ‘control’ is under greater scrutiny. In active checks, we’ve seen HMRC requesting documents detailing requirements, expectations and the daily responsibilities of each contractor.”

Initially taking to LinkedIn about the Adams case, Kingsbridge’s Mr Dawson warned: “For those businesses undergoing OPWR compliance checks, be very careful with HMRC's friendly and collaborative approach to these checks. They can, and will when it suits them, turn into a very different beast.”