Decade-long IR35 dispute between IT contractor and HMRC prompts calls for off-payroll revamp

The plight of an IT contractor, pushed to the brink of insolvency over the course of a decade-long IR35-related dispute with HM Revenue & Customs (HMRC), is being seized on as another sign the off-payroll rules need scrapping.

IT contractor Richard Alcock, trading as RALC Consulting Ltd, has been embroiled in a long-running IR35 dispute with HMRC, which claims that he is liable to pay National Insurance Contributions (NICs) and income tax contributions in excess of £240,000.

The unpaid tax was, according to HMRC, accrued during engagements Alcock embarked on with Accenture and the Department for Work and Pensions during the 6 April 2010 to 6 April 2015 tax years.

HMRC claims these engagements should have been classified as inside IR35 and Alcock taxed in the same as a permanent employee, which is a point of view Alcock countered by stating this work was carried out by him operating as a self-employed person.

As previously reported by Computer Weekly, a tribunal judged upheld an appeal in Alcock’s favour back in October 2019 at a First-Tier Tribunal (FTT), and ruled he did not owe any money to HMRC, as he was operating on an outside IR35 basis.  

HMRC told Computer Weekly at the time that it would appeal the ruling, leading to the case being heard by the Upper Tribunal in December 2023.

The final decision for the case was published on 12 April 2024, and saw the Upper Tribunal remit the case back to The First-Tier Tribunal “with some reluctance” because it did not feel “sufficiently equipped with the appropriate finding of facts to remake the decision”.   

Dave Chaplin, CEO of contractor compliance consultancy IR35 Shield, assisted Alcock with his original First-Tier Tribunal case five years ago.

In a statement, he said the protracted legal battle in this case has left RACL Consulting on the “brink of insolvency” after it ceased trading several years ago “due to the ongoing uncertainty surrounding the IR35 status of contracts undertaken between 2010 and 2015”.

This, coupled with the difficulties Alcock is likely to face when trying to locate witnesses to verify his working practices from more than a decade ago, means the case is likely to remain unresolved, and highlights the negative impact IR35 is having on the UK’s contracting sector, said Chaplin.

“Returning to the First-Tier Tribunal for a fresh hearing does not appear to be a tenable option for RALC, so the outcome, in this case, may remain forever unresolved. There do not appear to be any winners here,” said Chaplin.

The case underlines why the roll-out of the IR35 reforms to the public and private sector, in April 2017 and April 2021, respectively, have been so detrimental to the UK contracting sector, because cases like this make end-hirers wary of taking on contractors, said Chaplin.

“The RALC case exemplifies the unintended consequences of the IR35 reforms, which have burdened genuine businesses and undermined the entrepreneurial spirit that drives economic growth,” he added.

“Until these issues are addressed, the growth and competitiveness of UK businesses will continue to be hindered by the uncertainties surrounding the IR35 and off-payroll legislation.”

The Association of Independent Professionals and the Self-Employed (IPSE) has been campaigning for years for the IR35 rules to be scrapped, and the organisation’s head of policy, Andy Chamberlain, told Computer Weekly that Alcock’s case further highlights why the legislation needs ditching.

“This is yet another example of HMRC winning an IR35 dispute by default. Government’s willingness to outspend weary contractors using taxpayers’ cash carries a clear message to businesses dealing with the off-payroll rules today – work with contractors and risk a dispute you can’t afford to win,” he said.

“Having defended IR35’s flaws to the hilt, government’s strategy has been to leave it to the courts to deal with the confusion. But as RALC’s inability to go on defending itself proves, this is getting us nowhere. It’s well past time government put an end to this legal merry-go-round and worked with us to find a better way of taxing work fairly.”

Seb Maley, CEO of IR35 compliance firm Qdos, said the case also shines a light on how complicated the IR35 rules are, given that tribunal judges seem to having a hard time interpreting them too.

“Not for the first time, the nuances and complexities of the IR35 legislation run so deep that judges can’t seem to interpret it. But as is the case far too often, it’s contractors who pay the price,” he said.

“This contractor in particular, whose business no longer trades, is expected to head back to court and prove his innocence again – all while having a tax bill of well over £200,000 hanging over him for the foreseeable future.”