IR35 tribunals are nothing new, but November saw HMRC defeated at First Tier Tribunal in two separate IR35 cases, which was perhaps a first. Both tribunals hinged on Control and the controversial Mutuality of Obligation.
A reminder: what is Mutuality of Obligation?
As one of the determining factors for IR35 status, Mutuality of Obligation (MoO) is concerned with the obligations which each party has to each other. Specifically, this looks at the end client being obligated to provide work and the contractor being obligated to accept this work.
Controversially, HMRC fails to recognise Mutuality of Obligation as a determining factor for employment status in the current version of their Check Employment Status for Tax (CEST) tool, insisting that this is always present where the services of an individual are provided for money. This interpretation of Mutuality of Obligation is problematic, and the following cases demonstrate that this is not the case.
RALC Consulting Limited vs HMRC
In the first of the two cases, Richard Alcock celebrated a win in his IR35 tribunal after his five-year-long investigation. After being handed an assessment by HMRC in the region of £243,000, Alcock, an IT contractor, was granted permission to appeal to the First-Tier Tribunal.
Alcock entered into a series of contracts with former employer Accenture contracting to the Department of Work and Pensions. HMRC made much of the fact that he was contracting with his previous employer arguing that this was effectively the continuation of the employment relationship.
His counsel argued successfully that this was not the case and the level of Control and Mutuality of Obligation fell short of that which would characterise an employment relationship.
The contract clearly stated that RALC Consulting Limited could only bill for the work done, this was further supported by the fact that he had previously completed work for which he was not paid after the project was cut short. It was clear that there was no obligation for the client to offer work and no ability to charge if there was no work available. The tribunal found that the level of MoO required in an employment relationship is not present.
Canal Street Productions Ltd vs HMRC
The second case involved presenter Helen Prospero, who became the latest television presenter to win her appeal at the First Tier Tribunal. The investigation centred on the tax years 2012/13 and 2013/14 and once again, Mutuality of Obligation was a significant factor in the decision.
In this ruling, the judge stated that:
“There would be no mutuality of work-related obligation between the engagements: Ms Fospero would have no guarantee of work and would be under no obligation to perform work if it was offered.
She would be engaged on an assignment by assignment basis. Those assignments would be very short term, many involving only a matter of hours in the studio, albeit some requiring several hours of preparation in advance.
Although there would be a hope and expectation of further work under the arrangements, for the most part, when she finished work on a particular engagement, Ms Fospero would have no assurance that she would be offered further work.”
What do these rulings mean for the future of IR35?
In light of these decisions and the fact that HMRC have promised revisions to the CEST tool, surely HMRC will accept that their interpretation of MoO is too restrictive.
This, coupled with the fact that the NHS included an accrual in their accounts for £4.3m after HMRC challenged the status of a significant number of IR35 assessments made using CEST, throws into doubt the reliance of CEST and end hirers would be wise to engage an independent specialist to handle the IR35 assessments come April 2020.
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