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IT Contractor found innocent of tax evasion by tribunal

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It has been reported that a UK-based contractor has been wrongly pursued by Her Majesty Revenue and Customs (HMRC) for unpaid taxes. According to an IR35 tribunal, Richard Alcock, an IT contractor, was wrongfully accused of owing taxes over a five-year period from contract work he carried out for the Department of Work and Pensions (DWP).

HMRC pursued Alcott for unpaid employment taxes totalling more than £240,000, which they acclaimed was accrued by Alcock during the period between 6 April 2010 and 6 April 2015. Alcock’s alleged tax arrears came about owing to the HMRC treating his working arrangements as “permanent” as opposed to treating him as self-employed. Being a contractor with specific clauses in his engagement contracts, the tribunal ruled Alcock’s work should have been classified as outside the remit of the IR35. Subsequently, Alcock was found not to owe tax to HMRC during a tribunal hearing on 29 October last, owing to the fact that he is considered “an off-payroll employee”.

Alcock’s case was swayed in his favour owing to what the tribunal referred to as “the low-level of mutuality of obligation (MoO)”. This meant that Alcock, as a self-employed individual working on a contract-by-contract basis, could not be tried as a permanent employee because Alcock could not depend on the DWP having work for him to do, nor was he tied to a contract stipulating that he had to provide work to the DWP. As a contractor, Alcock was found not to have any of the entitlements that a permanent worker would have, such as paid holidays or sick leave, which further solidified Alcock’s position as a temporary employee for the DWP.

The outcome of the tribunal was a bitter pill for the HMRC to swallow, and in a statement to Computer Weekly, a HMRC representative has expressed an intention to appeal the ruling. However, this may be a waste of time as Dave Chaplin, CEO of IR35 consultancy Contractor Calculator, notes that the HRMC should have known that Alcock’s engagements lay outside the remit of the IR35 regulations.

In addition, Alcock’s successful appeal has thrown the effectiveness of the HMRC’s own “Check Employment Status for Tax” (CEST) contractor assessment tool into question. CEST supposedly helps public sector organisations decide whether or not their work falls into the remit of IR35. However, the tool does not take into account the mutuality of obligation clause. NHS Digital, which also relies on CEST to classify its contractors’ tax obligations, is currently facing a bill of £4.3m after a number of contractors were misclassified in circumstances similar to Alcock’s.