Contractors, are you sympathetic to the IR35 adviser in the Cowan case? The courts weren’t

A bit like the rules of professional tennis, there are set procedures which govern an HMRC enquiry under the Intermediaries legislation, so the “belligerent” IR35 adviser to ex-Wimbledon finalist Barry Cowman -- who irritably tried to change up the game -- was always on a hiding to nothing, writes former tax inspector Carolyn Walsh. 

Belligerent

By calling the adviser the ‘b-word’ (for full context it was his reply to HMRC which was branded in court “belligerent”), the Upper Tribunal doesn’t sound all that sympathetic to Cowan’s representative. 

But I think many contractors will sympathise with the representative, a chartered accountant named in the UT’s judgment as “Mr Leslie.”  

Crucially, HMRC's opinion as to the deemed employment status of Cowan for his Cranham Sports LLP’s 2013/14 and 2018/19 tax years with Sky Sports, was made by HMRC using information provided to the tax office by the broadcaster.

But it was information which was not promptly shared with Cowan or his representative. In hindsight, it’s actually even worse, as it was information which HMRC didn’t provide to Cowan and his legal team until over a year later. 

Anger, understanding, and politeness

Taxpayers  get angry with HMRC when they feel aggrieved.

But us advisers should not only understand the relevant legislation; we should also understand how HMRC procedurally manages enquiries -- and likes to manage enquiries, and that invariably means us responding to officials politely and relevantly.  

How advisers personally feel is irrelevant. Advisers can console themselves that while HMRC is, in contrast, free to express opinion, it is just that; opinion.  

What does ‘HMRC Opinion’ mean?

In fact, ‘HMRC opinion’ is term used by the tax authority for attaching observations to specific paragraphs in legislation that may apply; giving the taxpayer an opportunity to submit a relevant and hopefully accurate defence. 

So an official opinion from an HMRC officer -- as scary as it might sound -- should not be taken as an accusation. 

The keyboard warrior

In the Cowan case, HMRC’s “view of the matter” email clearly irked the taxpayer’s representative, Mr Leslie, who shot off a reply to it within 23 minutes. It is this keyboard warrior-esque reply to HMRC which the court took the unconventional step of denouncing as “belligerent.” 

Was it HMRC not being forthcoming with the information which it had obtained on Cowan from Sky, and which it still hadn’t shared, that explains the adviser’s hostile, aggressive reply?  

A  disaster that could have been easily averted

We don’t definitely know. But if the adviser had broken down each of the HMRC ‘opinions’ and responded with facts, while making a clear request for a review within the 30-day statutory deadline, the disaster for the taxpayer that went on to unfold would have been averted. 

Whatever his personal motivations or thoughts at the time, HMRC decided the adviser’s client -- Cowan -- must settle, accept a review or go to appeal.

Under the rules, these are the only options.  

Safety

But sympathies for the adviser may start to run dry here. The adviser refused to accept these options on behalf of Cowan, as the adviser wanted HMRC to respond to 23 “disputed points” which the adviser had sent to show the Revenue’s ‘inside IR35’ opinion was “unsafe.”

Unfortunately it was the safety of Cowan which ended up being compromised, because holding out for a reply to the disputed points rendered the acceptance of either a review or an appeal, out of time. 

So did IR35 apply in Cowan’s case? We don’t know. Did someone make a hash of representing him? I’d say that’s a ‘Yes’ and it’s a completely unnecessary outcome for the former British tennis star. 

A post-match analysis…

In any fair post-match analysis of the adviser’s performance, including what lessons contractors can objectively take from it, it’s key to highlight that HMRC's inside IR35 opinion was made using information provided to its officials by Sky, which was not immediately available to Cowan or his representative.  

The taxpayer’s representative says the inside IR35 decision “seemed to rely on information” which HMRC obtained from Sky, and so the adviser “considered it important and relevant to the basis on which it intended to challenge HMRC’s decision.”  

Fair enough. Right?

You might think that sounds fair enough.

But as Cowan and his team were told in black and white: “If you disagree with HMRC’s position, you have 30 days from the date of this letter within which to either accept my offer of an internal review by replying to this letter or notify the appeal to tribunal.” 

But the 30-day statutory deadline wasn’t abided by and two appeals have now tried but ultimately failed to undo the consequences of that inaction for Cowan.

Is it possible to brute force HMRC into changing procedures?

So, regardless of how a taxpayer or their adviser feels about the process, it’s largely irrelevant.

Why, well because it's simply not possible to force HMRC to change procedure.

The release of information ("the Sky documentation") not until a certain point in an enquiry is a case in point.  

The Cowan IR35 case holds more lessons for IT contractors than most presenter cases

My view is that an ineffective approach to HMRC on behalf of the taxpayer has had costly consequences, and these consequences have no doubt caused more angst for the already IR35-caught individual.

So in this case, and more so than many of the so-called IR35 ‘presenter’ cases of late, there are lessons that IT contractors concerned about IR35 can learn. Lessons on HMRC ‘opinion;’ on HMRC information-harvesting from clients and on HMRC documentation-release, but arguably no lesson from ‘Cowan’ is more important than the need to meet any and all deadlines which HMRC sets, unless you have particular and reasonable cause not to do so. And ‘reasonable cause’ does not include HMRC failing to reply to your emails, as belligerence-inducing as that may be.