IR35 – hands up if you know how to assess employment status correctly?

17 April 2024

Whilst Sky Sports pundit Neil McCann’s case is the latest victory for HMRC, this could just be a pause before the Court of Appeal is asked to intervene once more. In a long line of self-employed and IR35 tribunal cases, HMRC and tribunal judges are consistently being asked to re-review their homework as errors in law are being identified, with the process required to determine employment status not being followed. The long running Atholl House case exemplifies this where the Court of Appeal intervened after two judgements were “incorrect”.

And only this week, another Tribunal judge has requested HMRC v RALC Consulting Ltd be re-reviewed, because the required process has not been followed and shortcuts have been taken. The result is the contractor, Mr Alcock, remains in turmoil, anxiously waiting for a decision following over a decade of deliberation. 

There is no doubt the self-employed and IR35 rules are complex, but it raises a fundamental question: if those who are presiding over tribunal cases, with all of the information, historic case law and an intrinsic knowledge of the rules, cannot apply the rules correctly, how can businesses and contractors alike apply them with any confidence? 

The tribunal’s comments in HMRC v RALC Consulting Ltd confirm the simple principles that need to be followed before a judgement can be made. These include determining the terms of the “hypothetical contract”, followed by consideration of the principles of the Ready Mixed Concrete tax case. However, what sounds like a simple process in theory has been hard for even the most experienced tribunal judges to follow. Misjudgement by the tribunals only creates time pressures and frustration for those involved. For employers and contractors it means years of turmoil and additional cost. 

As a result, organisations are encouraged to take appropriate advice when it comes to self-employed and IR35 compliance to avoid costly liabilities and penalties. 

Data from the Association of Independent Professionals and the Self-Employed suggests one in 10 contractors are currently out of work due to the impact of reforms to IR35 legislation. Amid the government’s ‘back to work’ drive as a solution to the ever-increasing economically inactive cohort, the failure to address the issues within the contracting market feels like a stark oversight.