Dave Chaplin, CEO and founder of ContractorCalculator has accused the taxman of misleading the Chancellor of the Exchequer and the Treasury on laws surrounding the off-payroll (IR35) rules. He is specifically highlighting the mutuality of obligation (MOO) – a key aspect of law necessary to accurately assess employment status. As a result of this issue, Chaplin is now calling into question HMRC’s integrity.
In a letter to Environment Secretary, Michael Gove, sent in response to a constituent’s concerns regarding the public sector IR35 reforms, and specifically HMRC’s Check Employment Status for Tax (CEST) tool, Chancellor Philip Hammond stated: “Mutuality of obligation refers to any existing agreement where an individual provides services and receives payment for doing so – better understood as a contract existing between the two parties. CEST assumes as its starting point that a contract either exists or is being discussed.”
This flawed interpretation of MOO was also used by Financial Secretary to the Treasury, Mel Stride, in an almost identical letter to many constituents, which contained many more of HMRC’s trademark claims. On both occasions, the claim was used to rebut criticisms of CEST.
Dave Chaplin said: “We doubt the Chancellor or the Financial Secretary to the Treasury have any idea about what MOO is which is why they appear happy to trot out – albeit unwittingly – HMRC’s falsehoods regarding MOO and CEST.
“HMRC has been propagating its erroneous claims to public authorities and IR35 Forum members of late, but it’s a grave concern when these false claims are coming from the country’s key economic and fiscal decision makers,” he continues. “Questions must be asked.
“The Chancellor has reiterated HMRC’s supposition that MOO is present for all contractors. This assumption was built into CEST, meaning in excess of 750,000 CEST results will need to be re-examined, as will thousands of blanket decisions taken by the likes of the NHS. HMRC appears to have become the puppeteers of both the Chancellor in one hand and the Secretary to the Treasury in the other, issuing mistruths and denials to constituents to shore up their flawed position.”
Leading QC Jolyon Maugham flagged up the same potential outcome at a Select Committee hearing on BBC pay on 20 March 2018 when he stated:
“In two years’ time this Committee is going to be looking at a different question, which is whether the BBC and the NHS were right to force everybody to be taxed as employees in circumstances where the case law has shown after the fact that very often those people were properly taxed as self-employed.”
He added: “They [NHS and BBC] are saying everybody is an employee in circumstances where the law does not support that conclusion.”
Chaplin makes the case that HMRC is now in a very precarious position: “It has misled thousands of taxpayers; its consultation process chooses to ignore research demonstrating its failures, and now it is trying to cover its tracks by misleading the Chancellor. Surely the Chancellor cannot allow HMRC to get away with it? Public officials are required to abide by the Nolan Principles, which include objectivity and honesty, and HMRC is failing on both counts. We need a full inquiry before any further changes to IR35 are considered.”
The episode marks the latest turn in an ongoing saga over MOO and despite repeated requests by ContractorCalculator via FOI requests, HMRC has still not published it’s legal position on MOO and why it was omitted from its CEST tool. Recent tribunal rulings that have emerged have further served to compromise the taxman’s position on MOO as in the case of Armitage Technical Design Services (ATDS) Ltd v HMRC, where the Judge rejected the taxman’s interpretation of MOO.
MOO was also discussed in an IR35 tribunal concerning three BBC presenters this past month. During the case, Adam Tolley QC, representing HMRC, distinguished between what he termed ‘general mutuality’ and ‘specific mutuality’, which aligned with the Judge’s comments in the recent case of Jensal Software Limited where once again the judge refuted HMRC’s stance.
Chaplin concludes: “England might be hoping that its World Cup campaign is devoid of red cards but I would like to show HMRC, CEST and the Off-Payroll reforms one big red card with no second chances. We will continue to shout and boo from the sidelines to expose HMRC for utter incompetence and waste of taxpayers’ money, not to mention the false claims it is pedalling to the government.”