HMRC will face its very own judgement day within the next six weeks, during which it has vowed to publish its legal position on mutuality of obligation (MOO).
Either HMRC will continue to propagate false claims about the law or admit defeat, burying its Check Employment Status for Tax (CEST) tool, and the proposals for extending the Off-Payroll tax into the private sector, in the process.
It’s been nine months, multiple delays and many excuses in the making, but HMRC has finally confirmed in a Freedom of Information (FOI) response to ContractorCalculator that it will confirm its stance by the end of July 2018.
Why has HMRC chosen to disregard MOO?
Earlier this week, we published an item exposing HMRC for misleading the Chancellor, MPs and the labour market on the law surrounding employment status – specifically regarding MOO.
MOO is one of three essential elements of case law, alongside personal service and control that must be analysed to ascertain whether a relationship is one of employment. All other factors are secondary to these three key elements.
In employment law, personal service and control are present in a working arrangement, and this makes the individual providing the services a worker. For an engagement to be one of employment, sufficient MOO, or the right type of MOO, must be present.
Yet astonishingly, HMRC purposely omitted this element of case law from CEST, the IR35 assessment tool that it released in Feb 2017. The reason the taxman gave for doing so was that HMRC assumes MOO to be present in every contractor engagement.
This claim is untrue in law, as repeated tribunal rulings involving HMRC have demonstrated conclusively. Many contractors might be workers in law, but not employees, and CEST is unable to distinguish between the two.
ContractorCalculator has spent more than a year bringing CEST’s shortcomings to HMRC’s attention, as have members of the IR35 Forum, tax experts and barristers.
HMRC has continued to deny the facts while promoting CEST and its flawed stance on MOO, without substantiating its claims. But now HMRC has dealt its hand as it has committed to a date by which it will state its position publicly.
What evidence points toward HMRC’s flawed stance?
The courts have for years disregarded HMRC’s narrow view of MOO. The taxman has long been aware of the situation, having lost at IR35 tribunal just weeks before it released CEST in a case where the Judge comprehensively rejected HMRC’s position on MOO.
In addition to this, last month HMRC took on three BBC presenters at tribunal in a nine-day IR35 case; the judgment for which we are still waiting. Dave Chaplin, CEO of ContractorCalculator, attended the final three days where QCs for either side made their submissions. Interestingly, in making his submission on behalf of HMRC, Adam Tolley QC explained MOO in a manner which, in Chaplin’s opinion, contradicted HMRC’s portrayed stance completely.
Then, last month we had the Jensal IR35 case. This marked another victory for the contractor over HMRC and another case where it was shown in no uncertain terms that HMRC’s position on MOO is wrong.
Last week, we published a guest item by Matthew Boddington, one of the country’s leading experts on employment case law, who has won more IR35 cases in court than anyone else. Taking all of the above into account, together with other IR35 case history, Boddington confirmed that CEST without MOO can never be accurate.
MP correspondence relays falsehoods about MOO and CEST
Over recent months many contractors have been writing to their MPs, spurred on by ContractorCalculator’s IR35 campaign. One contractor, through Michael Gove, was issued a response from the Chancellor of the Exchequer, which repeated the falsehoods that HMRC has been spreading about MOO.
ContractorCalculator then saw a response from the Financial Secretary of the Treasury to another constituent, relaying HMRC’s unsubstantiated catch-all statement that criticisms made against CEST are false.
HMRC published its draft position on MOO for IR35 Forum members in February 2018, requesting forum participants to respond by the end of March. Many did, and from what we have heard, forum members almost unanimously disagreed with the taxman’s stance.
HMRC had promised to publish its position shortly after this date, having previously fallen short of delivering on promises to publish in January 2018. Once again, HMRC failed to stay true to its word, which is why we sent yet another FOI request to obtain the detail.
In its most recent response, HMRC claimed that it had already planned to publish by the end of July, which it stated, meant there was no need to release to us just yet. HMRC can insist that the publication was already on the agenda, but we have a sneaking suspicion that the end of July date will be news to the IR35 Forum members.
What will happen when HMRC publishes its stance?
HMRC has a couple of options, both of which will score an own goal as we have previously described. Whichever route the taxman chooses, you need to put 31 July 2018 in your diary.
Who knows? HMRC might defy all logic by standing by its already indefensible legal position, and demonstrate once again that it does not understand the law it is trusted to enforce.
Alternatively, the taxman might concede defeat. This would effectively subject CEST to exile, and call into question the 750,000 assessments it has so far conducted, in addition to the additional £410m in tax that HMRC claims to have collected off the back of it.
And the outcome? The new Off-Payroll tax proposals will be completely derailed, at least until this mess gets sorted out.