Government urged to relook at IR35, following RALC Consulting showing ‘what a mess’ HMRC’s rules are in

The “mess” of RALC Consulting is why IR35 needs to be relooked at, because the case sums up many of the wrongs of being caught by the rules.

Employment tax expert Susan Ball says a “fresh hearing” to “examine the facts again” is now needed due to the first hearing in 2019 getting it wrong.

Rather than table remedies, the Upper Tribunal has remitted RALC’s victory to the First-tier Tribunal, where the errors were made in the first place, Ball observes.

'Government needs to take RALC Consulting case on board'

But the FTT has been told to decide not what the contract stated, reminds Ball, but what its hypothetical terms were – some 14 years ago on RALC’s engagements.

Government needs to take this onboard,” Ball, of RSM UK says. “The length of time and resources which cases are taking to be heard/resolved.”

ReLegal Consulting echoed the chronology, saying RALC “having won at the FTT” now must return to see the FTT “remake the decision”.


But the law firm’s founder Rebecca Seeley Harris agrees that for RALC’s Richard Alcock, it will feel “unfortunate”.

It probably feels disorientating for the 47-year-old too, according to Graham Webber of WTT Group.

“Round and round and round [he goes] -- Mr Alcock, owner of RALC Consulting, must be in a real spin,” Webber wrote. 

“Nearly ten years after HMRC opened an enquiry into his IR35 status; seven years after HMRC issued assessment on extended time limits, and five years after he won in the First-tier Tribunal, the Upper Tribunal has now decided that it should all be done again.”

'Tribunal system ought to bring justice and be easily accessible'

In an online post, Webber asked why the UT could not “just say” what the errors were in a “correct” ruling of Alcock’s IR35 status, to outright replace the FTT’s.

He added: “If that was the case, and Mr Alcock disagreed, he could then go to the Court of Appeal and not be forced to start again. 

“The tribunal system has an overriding aim to bring justice and to be easily accessible.

“This [UT ruling] is one of several decisions that I struggle to reconcile with that objective.”

'UT ruling is major blow for Richard Alcock'

Chartergates says the UT’s decision in RALC versus HMRC represents a “major blow for the taxpayer.”

“Sadly, and rather frustratingly, although further appeals and re-hearings are not new in the context of IR35 disputes – particularly in cases where taxpayers have initially been successful before the FTT – this case once more highlights HMRC’s robust determination to secure decisions in its favour.”

In an analysis by the legal services firm which it sent to ContractorUK, Chartergates continued:

“The UT’s decision appears to be unsympathetic to the fact that the FTT’s decision was delivered some five years ago, and in the intervening period a number of IR35-related cases have been appealed to the UT, the Court of Appeal and the Supreme Court, which have cumulatively provided invaluable clarification on various principles governing this area of law.

“Nevertheless, the [RALC remittance] decision once more affirms the fact that the application and interpretation of the IR35 legislation is not an easy task.”

'A mess that the government needs to seriously consider other options for'

Compounding that not easy task, is that a different approach needs to be taken for employment law -- where the actual contract is considered, says RSM’s Ms Ball. 

“What a mess,” the employment tax partner took to LinkedIn to say, adding:

“The government needs to… seriously consider other options including perhaps a potential statutory test for tax and employment law. It might just make the rules more workable for all.”

And by ‘all’ parties finding IR35 to be unworkable, that means HMRC too, suggests Mr Webber.

'Unworkable HMRC rules; surely for HMRC too'

“Even HMRC cannot welcome the prospect of going back to square one,” WTT’s tax director said of the RALC remittance ruling.

“It does highlight that the intermediaries rules are unworkable in their present condition.

“Changing the party accountable for a poor decision from contractor to end-client [ -- as the off-payroll rules do -- ] is unlikely to improve these rules.”

'Guinea pig'

The shift in responsibility does potentially introduce another party, though, to finally give PSC contractors a break from constantly being in the dock.

ReLegal’s Ms Seeley Harris said: “However unfortunate [the UT’s decision is for Alcock] the point here is that the tribunal agreed with HMRC that the FTT had erred in law, but I'm not sure how we get to the point where the taxpayer is not the unfortunate guinea pig in proving employment status principles.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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