RALC case overturned five years later

Background

In the case of HMRC v RALC Consulting Limited [2024] UKUT 00099 (TCC), the Upper Tribunal (UT) received an appeal from HMRC which was heard on 14 and 15 December 2023, with the decision published on 12 April 2024.

In 2019, The First Tier Tribunal (FTT) originally decided in favour of the taxpayer, Robert Alcock. He had been providing services through a limited company (RALC Consulting Ltd) to Accenture (UK) Ltd, who then contracted him to Police Scotland and the Department of Work and Pensions between 2010 and 2015, concluding that the work was done outside of IR35.

What was the UT asked to do?

HMRC provided several grounds of appeal, but in the end, only the first two were considered in any detail. The remaining five grounds concerned themselves with erring in law or reaching perverse conclusions, however, the first two grounds served to decide the other five.

The first ground stated that the FTT ‘failed to properly identify the terms of the hypothetical contracts and to apply the common law test of employment status to those terms’ in line with the legislation. The FTT considered the Atholl House case and followed the three-stage process set out in that case:

1. Locate the actual terms of the contractual arrangements.
2. Construct a hypothetical contract.
3. Consider whether the hypothetical contract represented a contract of employment.

The UT's analysis of the FTT’s examination of the three-stage process found that the FTT hadn't applied the assessment of facts to the hypothetical contract to determine whether employment or self-employment existed in RALC. The FTT had only looked at certain facts - the court had been distracted.

The second ground stated that the FTT ‘erred in law in its approach to mutuality of obligation’ which then led to them concluding that there was insufficient mutuality of obligation. It's commonly known that the mutuality of obligation needs to be present, in accordance with the key employment status case, Ready Mixed Concrete, for an employment relationship to exist.

• Despite the FTT knowing that the right to turn down further work doesn't eradicate the presence of mutuality of obligation, in a similar way to not having a guarantee of minimum hours or the power to terminate a contract. These are set out in many employment contracts so don't automatically mean that an individual is self-employed because of them. The UT noted that the FTT had failed to take these into account in their overall assessment of the employment status. This swayed them into thinking that IR35 didn't apply.
• The UT considered the PGMOL case, looking at the concept of overarching contracts. However, it was unusual for them to consider this at all, given that the Supreme Court decision on PGMOL is to be determined, and could change things depending on what decision emerges. In the McCann case, the grounds that the PGMOL case should be considered were dismissed.

Decision of the UT

The UT concluded there were material errors of law in the FTT's decision and decided to set it aside, remitting it back to the FTT and potentially causing Mr Alcock to once again be exposed to potential tax liabilities of around £250,000.

Conclusion

HMRC seem determined to obtain decisions based on mutuality of obligation at the current time, when the CEST tool clearly and unambiguously states that HMRC doesn't consider mutuality of obligation to influence an employment status decision one way or the other. Therefore, it is excluded from CEST, despite it being a key component in what is universally acknowledged to be the leading case authority – Ready Mixed Concrete.

The fact that the UT was prepared to consider the PGMOL case is also an unusual turn of events, given that other cases are purposefully not including it in their deliberations. It seems that the judiciary doesn't know which way to turn on employment status cases at the present time, which makes life even more complex for those caught up in disputes.

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