May 8, 2024

Yet another IR35 appeal – are HMRC once again trying to change the landscape?

After five years, HMRC are going back to court to rehear the original IR35 case. This follows the announcement that HMRC’s appeal in their case against RALC Consulting Limited has been passed back to the First Tier Tribunal.

After five years, HMRC are going back to court to rehear the original IR35 case. This follows the announcement that HMRC’s appeal in their case against RALC Consulting Limited has been passed back to the First Tier Tribunal.

HMRC’s appeal succeeded on two key ground:

  1. The First Tier Tribunal failed to properly determine what the terms of the hypothetical contracts would have been and apply the common law test of employment to those terms
  2. The First Tier Tribunal erred in law its approach to mutuality of obligation

In our opinion, the length of time between the original case and HMRC’s appeal to rehear the case behind granted is unacceptable and potentially opens many more businesses to have their cases reheard.

However, we do not propose to cover these arguments. Instead, we think it is vital to delve into the motivations behind HMRC’s move.

Does HMRC have a hidden agenda?

Cynically, three questions spring to mind following the decision for HMRC’s original IR35 case to be reheard:

  1. Is there another, potentially less benign, HMRC strategy at play?
  2. Are HMRC endeavouring to rewrite the rules in their favour?
  3. What future attacks on the Off-Payroll Working sector do HMRC have planned?

HMRC’s strategy appears to be focused on continually challenging and intimidating the consulting sector. This is particularly the case when tribunal decisions do not go in their favour. Whilst it is absolutely fair for HMRC to appeal decisions, but such a course of action should be pursued as soon as possible, not five years later.

We are all aware that the cases being considered at the moment are in respect of the previous iteration of IR35 where HMRC pursue the personal service company (PSC) for recovery. But are HMRC attempting to ‘stack the deck’ in their favour with these older cases in preparation for a future attack on medium and large businesses caught within the Off-Payroll Working Rules?

HMRC may be hoping that efforts to challenge larger organisations will secure them ‘blanket decisions’ which impact the whole industry in some sort of “if we break one, we break them all’ strategy. If they are successful in this, the potential earnings for HMRC from businesses is eye wateringly high.

What can you do to protect your business?

All businesses and particularly those caught with the Off Payroll Working rules need to think and look long and hard at the robustness of the systems and procedures they have in place. Any failings and weaknesses will no doubt be pounced on by HMRC.

Great care therefore needs to be exercised, and the significance and importance of considering the hypothetical contract and relationship between the end client and worker needs to be understood.

Given the hypothetical contract is at the heart of IR35 itself, for medium and large businesses caught within Off Payroll Working, demonstrating compliance will mitigate risk.

This is where the IR35 App can help. It will support you demonstrate compliance on all fronts, providing a clear audit trail of the decision making processes your business has followed, with particular attention to all the key areas and fundamental within IR35 and Off Payroll Working.

What is IR35 App?

Inspired Employer Solutions Ltd (IESL) have developed IR35 App (www.ir35app.co.uk) which includes a short 60 second info video.

This is a first to market solution which cannot be found elsewhere and is specifically adapted to your business. This unique and unrivalled paperless software application which delivers a bespoke and innovative approach to IR35 and Off Payroll Working. Implementing the necessary defence mechanisms that will educate and protect your business and make HMRC think twice before challenging.

IR35 App is backed by IESL’s team of dedicated specialists. The Directors Adrian Williams and Geoff Heron are former investigators with HMRC and Senior Managers with a Big 4 accountancy practice have the expertise and knowledge to help.  IESL’s Directors are also joined by Steve Gretton; a former Employment Status Inspector who spearheaded IR35 investigations within HMRC. We believe no other “Big 4” or accountancy practice in the UK can boast such and array of hands on expertise.

How can you get IR35 App?

IR35 App is not available as an “off the shelf” product; why? - because the Directors understand that the decision makers within businesses caught up in the Off Payroll Working rules and interested in investing in this unique product will want to understand its benefits and value prior to purchase

Adrian and Geoff believe the best way to move this forward is to hold a face to face meeting, where we can:

  • Demonstrate the IR35 App.
  • Discuss the “extras” that come with IR35 App.
  • Discuss IR35 App IT support.
  • Confirm Pricing.

Final thoughts

Being involved in a HMRC dispute on whether a worker’s engagement is inside or outside IR35 is both time consuming and financially costly.

There is no need to panic and conclude that to avoid the risk of investigation you need to deem all engagements to be inside IR35. This is because:

  • Understanding deemed employment status criteria and applying these correctly could result in the arrangement being outside IR35 and Off Payroll Working.
  • You may deter attracting the quality freelance worker(s) / PSC(s) your business needs.
  • Treating every freelance worker as inside IR35 and Off Payroll Working is likely to increase costs.
  • One size does not fit all.

Similarly, taking a chance and treating all engagement are outside IR35 is likely to result in:

  • Incorrect decisions.
  • Dispute with HMRC.
  • Time consuming and financially costs with regard to HMRC settlement.
  • May lead HMRC to investigate other areas of the business.