Qdos Contractor IR35 expert Andy Vessey has shared his account of an unusual occurrence in which HMRC abandoned an IR35 case it had been pursuing for three years against a contractor, Gary Philpot.

Philpot is a contracting IT professional and director of GMPFive Consulting Ltd (GMP5). In July 2015, he received an IR35 enquiry letter from HMRC notifying him that inspectors were now investigating his accounts for the tax years 2013-14 and 2015-15. The contracts under the spotlight were with none other than HMRC themselves.

Through GMP5, Philpot had supplied IT test management services to HMRC on their FACTA project. He was engaged on a contracting basis as HMRC lacked the requisite expertise.

Following the initial letter, a meeting took place in December 2015 between HMRC, acting as the Regulator, and GMP5, who had brought in Qdos Contractor’s Vessey for advice and assistance. The tax inspector then corresponded with HMRC, as the end client, to request their version of events, which supported GMP5’s case that the contracts concerned had been outside IR35.

However, the Status Inspector sought to force the case and interviewed three Revenue end-client officials, whereupon he concluded in September 2016 that GMP5 was in fact caught by IR35. Significantly, as Vessey points out, this was the very same Status inspector responsible for the Jensal Software debacle, which ended in defeat for HMRC.

Qdos pressed for an independent review in an attempt to prevent the matter from progressing to tribunal. The review considered HMRC’s deemed payment calculations, which totalled £59,000, and in May this year simply upheld the original “inside IR35” decision.

Vessey is scathing about that outcome: “These reviews are now becoming a waste of time and a fait accompli.” He insists that Reviewing officers ignore pertinent case law, especially recent tax tribunals. He argues that the HMRC’s knee-jerk response is to discard the rulings and claim they set no precedence, which he feels is far from impartial.

The Status Inspector then attempted to deter GMP5 from progressing to tribunal but Qdos pushed ahead with an appeal which was due to be heard at the First-tier Tribunal at the end of May. However, in a surprise twist, HMRC announced that they would simply close the case instead.

Vessey speculates that HMRC may have been yielding to concerns raised by the Chartered Institute of Taxation (CIOT) in a letter to the Treasury Sub-Committee that the tax authority appeared overzealous by pursuing cases with a less than a 50% prospect of success. This contravened their own Litigation and Settlement Strategy, which obliges HMRC to apply the law impartially and consistently.

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