Dave Chaplin, CEO, ContractorCalculator:
Following its brief moment in the limelight earlier this month, Larkstar Data has disappeared back into obscurity, with many seeing this as just another run-of-the-mill IR35 story. But what it tells us about HMRC’s determination to win IR35 cases at all costs is far from run of the mill.
After all, even the judge ruling on whether to allow HMRC to appeal seemed to be puzzled as to why the taxman was spending so much time and money so ruthlessly chasing such a relatively small amount of money.
A close reading of the ruling, conveniently available from the Professional Contractors Group's website, shows that this seemingly innocuous IR35 case deserves to be taken seriously. Very seriously indeed, in fact, especially by any contractor who has ever worked, or might work in future, on a contract that they assumed was outside IR35.
The Larkstar Data case began differently and has continued to be an anomaly, which is why it deserves such close attention. It was an IR35 case, but heard by the General Commissioners rather than the Specials – extremely rare but not unheard of. The contractor, Alan Brill opted to defend himself, despite his entitlement to support as a PCG member. He did very well and won the case, but, very unusually, HMRC appealed to the High Court.
Because the case was heard by the General Commissioners, who do not publish rulings, the details of the case have been difficult to understand and somewhat blurred; but they are just starting to come into focus.
HMRC appealed against the ruling by the General Commissioners, largely on technicalities. The ‘Generals’ had made mistakes in applying the law, which, given they are not experts like the ‘Specials’, is perhaps not that surprising.
You could be forgiven for thinking that the mighty HMRC, in a fit of pique at having been beaten at their own game by an amateur representing himself, chose to go after Brill in the High Court, basing its challenge on technicalities. We couldn’t possibly comment…
In fact, the counsel for HMRC indirectly referred to the General Commissioners as being ‘inept’ in their application of certain examples of evidence. But surely it’s not the contractor’s fault the General Commissioners in this case might have got it wrong?
HMRC has been partially vindicated, because the judge in the case, Sir Donald Rattee ruled that the case must go back before a different panel of General Commissioners. However, there was a sting in the tail, with Rattee commenting:
“Particularly having regard to the comparatively small amount of money at stake on this appeal it is in my opinion unfortunate that there has to be all the expense and delay of a re-hearing by the General Commissioners.”
Rattee later went on to say: “For the reasons I have given, however, I shall allow the Revenue’s appeal and remit the matter to the General Commissioners for re-hearing by a different panel.” The turn of phrase could suggest a certain reluctance on the part of the judge to spend more time and money on the exercise.
HMRC lost but could not bring itself to accept defeat gracefully. Furthermore, although Rattee’s ruling is not comprehensive, in its unrelenting pursuit of victory, HMRC caused sufficient evidence to be discussed and assessed to suggest that issues such as working within client’s core hours and notice periods could impact on a contractor’s IR35 status.
The final twist in this convoluted tale is this. Unless the case is re-listed to be heard within the next two months, there will be no more General Commissioners and their Clerks to hear the case. They are due to be abolished and replaced by the new Tax Chamber in April.
Make no mistake, Larkstar Data and its IR35 troubles will be back. In fact, they never really went away.