The Commissioners for HMRC v Basic Broadcasting Limited
[2024] UKUT 165 (TCC)
The Commissioners for HMRC v RALC Consulting Limited
15 April 2024
[2024] UKUT 99 (TCC)
Upper Tribunal
A company (RALC) hired out a consultant (Alcock). The taxman (HMRC) argued he was an employee, not self-employed. A lower court got it wrong by not imagining what a direct contract between the consultant and the client would look like. A higher court sent it back to be re-decided correctly, focusing on what that imagined contract would say.
Key Facts
- •Appeal by HMRC against a First-tier Tribunal (FTT) decision that intermediaries legislation (IR35) did not apply to RALC Consulting Limited (RALC).
- •RALC is the personal service company of Mr. Richard Alcock, an IT consultant.
- •Alcock provided services through RALC to end clients (Accenture and DWP) via agencies (Networkers and Capita).
- •Disputes relate to tax years 2010/11 to 2014/15, with £164,482 income tax and £78,842 NICs at issue.
- •The FTT held that there was insufficient mutuality of obligation between Alcock and the end clients in the hypothetical contracts to establish an employment relationship.
Legal Principles
Intermediaries legislation (sections 48-61 ITEPA 2003 and SSCI Regulations 2000) determines whether payments to an intermediary should be treated as employment income for tax purposes.
Income Tax (Earnings and Pensions) Act 2003, Social Security Contributions (Intermediaries) Regulations 2000
Three-stage test for applying intermediaries legislation: (1) Identify terms of actual contracts and relevant circumstances; (2) Ascertain terms of the hypothetical contract between worker and client; (3) Determine if the hypothetical contract would be a contract of employment.
HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501
Construction of the hypothetical contract involves a counterfactual exercise considering what terms would have been agreed if the worker and client had contracted directly. Relevant circumstances beyond the contract terms can be considered.
Usetech Ltd v Young [2004] EWHC 2248 (Ch), Atholl House UT [2021] UKUT 37
Ready Mixed Concrete (RMC) test for employment status: (i) mutuality of obligation; (ii) sufficient control by the employer; (iii) other provisions consistent with a contract of service.
Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497
Mutuality of obligation is an element of the RMC test, not the sole test. Mutuality within individual engagements, even without overarching obligation, can suffice. The right to terminate a contract at will does not negate mutuality unless exercised.
HMRC v Professional Game Match Officials Limited [2021] EWCA Civ 1370
Outcomes
Appeal allowed.
The FTT failed to properly construct the hypothetical contracts before applying the employment status test, materially erring in its approach to mutuality of obligation and failing to follow the three-stage process for applying intermediaries legislation.
Decision set aside and case remitted to the FTT.
The Upper Tribunal found the errors of law to be material and lacked sufficient findings of fact to remake the decision. A new panel will rehear the appeal.