HMRC give up case after 3 years

HMRC drop £59k case following a three-year IR35 enquiry

The Chartered Institute of Taxation (CIOT) recently wrote to the Treasury Sub-Committee, expressing its concerns to MPs that HMRC were seemingly eager to litigate despite advisements that cases had a less than 50% chance of success, going against their own Litigation and Settlement Strategy (LSS) which requires HMRC to apply the law fairly and consistently.

This eagerness by HMRC was seen in the case of Jensal Software Ltd which was recently defended by Qdos Contractor’s Head of Tax, Andy Vessey. The case was seemingly clear-cut to everyone but HMRC, and so the case was taken to Tribunal. In reviewing the facts of the case however, the Judge sided with the contractor and HMRC were sent home with their tail between their legs.

Andy Vessey has now reported on a strange IR35 case he has recently defended involving Garry Philpot, director of GMPFive Consulting Ltd (GMP5), where after three years fighting his case, it was unexpectedly ended a few weeks ago when HMRC announced that they were giving up.
 

The enquiry

Garry received an IR35 enquiry letter back in July 2015 which notified him that HMRC were investigating his accounts for 2013/14 and 2014/15 tax years, relating to his contracts with none other than HMRC themselves.

Garry’s company, GMP5, had been providing IT test management services to HMRC on their FACTA project, as HMRC had lacked the expertise internally.

A response was given to the initial letter, followed by a meeting held in December 2015 between HMRC (as the Regulator) and GMP5 (alongside Qdos) in order to discuss the working practices. The Inspector then wrote to HMRC (as the end client) for their version, which supported that the contract was indeed outside of IR35.

Unfortunately, however, the Status Inspector for GMP5’s case was none other than that responsible for the Jensal Software fiasco, and so, in an attempt to force the case, the Status Inspector held a teleconference in June 2016 with three HMRC (end client) officials, resulting in a ‘caught by IR35’ result issued in September 2016.

Vessey encouraged Garry to ask a representative at HMRC (end client) some supplementary questions which clarified some of the important tests for employment status. The result of these confirmed that there was in fact a right of substitution, adding clout to their counter argument.

Expectedly however, the Status Inspector dismissed the arguments, twisting them to suit his own, and so, in an attempt to avoid the matter ending up at Tribunal, Qdos asked for an independent review.

HMRC eventually released the deemed payment calculations in November 2017, totalling nearly £59,000. However, despite waiting months for this determination, the Section 8 NIC Decision had to be reissued as HMRC had failed to enter the correct dates.

In May 2018, the independent review was released and simply upheld the original decision. Andy Vessey commented on the value of these independent reviews:

“These reviews are now becoming a waste of time and a fait accompli. Reviewing officers disregard any meaningful case law, particularly recent Tax Tribunal cases where their stock response is that such rulings do not set legal precedence and HMRC do not agree with the decision anyhow. So much for impartiality!”

The Status Inspector then made an attempt to discourage GMP5 from proceeding to Tribunal. Correspondence was received in May which informed of a meeting with HMRC Commercial Directorate (responsible for contract procurement) who had confirmed that for those contractors engaged under CL1 contracts (a framework for engaging contingent labour across government departments):

• Personal service is a requirement for the duration of the contract;
• HMRC would not permit a substitute;
• HMRC have the right of control over how, what, when and where the work is done;
• Contractors are not required to provide their own equipment;
• Other than a requirement to have sufficient insurance cover in place, freelancers are not exposed to a financial risk; and
• No notice period either way.
  
  

Despite this correspondence, GMP5 and Qdos pushed forward with an appeal, lodged with the First-tier Tribunal at the end of May 2018, and thus awaited HMRC’s Statement of Case. Instead, HMRC announced only weeks ago, that they would be closing the case.

Positive result

Whilst a very positive result - it is an odd one - as HMRC’s case was stronger than that for Jensal Software.

It could be that the surrender is a result of the CIOT’s concerns, or it could merely be a coincidence. Either way, the decision is no doubt a relief for Garry - the stress of the enquiry and appeal was taking its toll on both him and his family.

Andy Vessey commends his client:

“They remained strong and resolute however and Garry was determined to fight to the bitter end, and actually expressed some disappointment in not being able to have his day ‘in court’! I salute you Garry.” 


NB: All facts of this case have been consented for release by the client defended in the case.