IR35 ‘cold case’ RALC Consulting to return to the FTT, in HMRC ‘half-victory’

An IT consultant who won his IR35 case against HMRC five years ago is to be hauled back to court.

Richard Alcock, 47, got told on Friday that the First-tier Tribunal erred in law by not properly constructing a hypothetical contract for his engagements.

Despite ripping up his £243,324 IR35 bill, the FTT also “erred in law in its approach to mutuality”, the Upper Tribunal ruled on April 12th 2024.  

‘Remitted to the FTT’

So the taxman’s appeal of Alcock’s RALC Consulting Ltd versus HMRC in September 2019 has now been “allowed,” meaning it is “remitted to the FTT.”

Chris Stone, HMRC’s barrister in the UT case, took to LinkedIn yesterday with these words, not gloating but in a sort of victory post.

However as the UT has only ruled the case to be reheard, rather than rule Alcock’s engagements from 2010-15 as inside IR35, it’s only a half-victory.

‘A half-victory for HMRC, but a defeat for IT contractor Richard Alcock’

IR35 contract review firm Qdos conceded this yesterday when presented with the ‘half-victory’ characterisation by ContractorUK.

“You could say it’s half a victory for HMRC,” said the firm’s Seb Maley. “But in reality, it’ll feel like a defeat for the contractor”.

Qdos’s CEO, Mr Maley pointed out that Alcock is being “dragged” back to court for work which his company carried out some 14 years ago.

Moreover, RALC Consulting went in front of FTT judge Rupert Jones and Mohammed Farooq in 2019, to be vindicated as outside IR35.

‘Judges can’t seem to interpret IR35’

“Five years on from having successfully won this case and 14 years since the work was carried out, [Alcock now] faces the prospect of being dragged through the tribunal system once more.

“Not for the first time,” continued Maley, “the nuances and complexities of the IR35 legislation run so deep that judges can’t seem to interpret it.”

Pointing to his 2010-15 stints, which were at Accenture and the DwP, Maley also said of Alcock: “But as is the case far too often, it’s contractors who pay the price.”

‘RALC Consulting is an IR35 cold case’

A former Revenue inspector headed up Alcock’s legal team in 2019, and another ex-tax officer now says their old boss doesn’t let sleeping dogs lie.

“Almost worthy of the BBC series Waking the Dead, [the RALC Consulting ruling] looks as if the extra budget afforded to HMRC has been spent on a ‘cold case’ unit,” the ex- tax officer, Carolyn Walsh, mused to ContractorUK.

“I would say though, that HMRC isn’t simply after the tax money here. Rather, it probably wants to put into case law a full and final decision on mutuality of obligation, which is a mainstay of any IR35 appeal and needs to be clarified.

“And this judgment by Mr Justice Richards and UT Judge Ashley Greenbank goes some way towards supporting HMRC’s stance on Mutuality, which we’re waiting on ‘PGMOL’ to reject or reiterate.”

‘PGMOL’

In his LinkedIn post, HMRC’s barrister Mr Stone observed that the UT spent some of its ruling on Friday summarising the law on Mutuality of Obligations.

“The latter summary draws heavily on the decision of the Court of Appeal in HMRC v PGMOL,” the barrister posted, “and so is subject to the outstanding decision of the Supreme Court in that case.”

However, a tax lawyer cautions that the RALC Consulting case has not just been sent back to the FTT; it’s been sent back with instructions.

‘Apply the approach’

“[And those] instructions [are] to apply the approach set out by the UT,” says the lawyer, ReLegal Consulting’s Rebecca Seeley Harris.

“[Yet] the UT has specifically stated that the FTT should not infer that if they had approached the construction of the hypothetical contract correctly, and properly applied the concepts of mutuality of obligations, that Mr Alcock should be regarded as an employee for income tax purposes.”

Indeed, there’s “every chance that the tribunal could come to the same verdict” as it did previously, according to Qdos’s Seb Maley.

‘Madness’

“Which is madness, given the cost and time, not to mention the stress that’s being placed on the contractor,” Maley said, adding to ContractorUK: “Of course, it’s not the first time this has happened.

“Kaye Adams experienced something similar and, while she won her case eventually, the costs involved were significant -- she had no real option but to spend a fortune personally, simply to prove her innocence once more.”

‘Innocence’

Qdos expects Alcock to now head back to court and “prove his innocence” again -- albeit with a “tax bill of over £200,000 hanging over him for the foreseeable future.”

While the IR35 contract review firm acknowledged that the willingness to face HMRC again assumes Alcock has the “resources” to fight on, it assumes he has the “appetite” too.

Such a digging deep exercise might also be required if the contractor wants to win such a high-stakes battle on the ground which has seen a few high-profile limited company directors recently triumph over HMRC.

‘Game-changer’

Former tax inspector Walsh fleshed out her assessment to ContractorUK: “It’s accepted at point 4 of the UT’s summary at paragraph 485 that Mr Alcock wasn’t working under control of the end-hirers or agencies.

“However as an agency worker, it remains hard to convince HMRC of that, at least without clear evidence of being in business on one’s own account, which the FTT found to be neutral to pointing towards self-employment. 

“The final outcome of this case could be a game-changer because Check Employment Status for Tax, which determines whether IR35 applies, might very well come ever closer to case law, until we can suppose there could eventually be no difference whatsoever.”