The tribunal focuses on the bigger picture in another taxpayer IR35 win.
The First-tier Tribunal decision in Atholl House Productions Ltd v HMRC [2019] UKFTT 242 (TC) concerns the basis on which the television and radio presenter Kaye Adams was engaged by the BBC. It continues the theme of HMRC seeking to invoke IR35 to challenge the use of personal service companies (PSCs) by television and radio presenters. Other well-publicised recent examples of IR35 cases concerning presenters include Albatel [2019] UKFTT 195 (TC), which related to Lorraine Kelly’s engagement by ITV, and Christa Ackroyd Media [2018] UKFTT 69 (TC), another case involving the BBC. Atholl House is by no means the end of the story: further IR35 decisions relating to the engagement of presenters are expected to be handed down in the coming months.
This most recent decision represents a further loss for HMRC, with the First-tier Tribunal finding in favour of the appellant PSC. It is a significant decision, as it demonstrates yet again the difficulties HMRC faces in using IR35 to argue that presenters’ engagements through PSCs should be treated as employment relationships for tax purposes. This was also apparent in Albatel, in which IR35 was held not to apply; and, while HMRC was successful in Ackroyd, the sense that the Ackroyd decision was an outlier has been given further credence following HMRC’s loss in Atholl House.
Comparing Atholl House and Ackroyd, both of which concerned the engagement by the BBC of well-known presenters through their respective PSCs, gives a feel for the types of arguments that taxpayers will be able to muster to resist IR35 claims by HMRC in future. Such claims are likely to become more prevalent following the reforms of the IR35 rules for the private sector, which are due to take effect in April 2020.
The IR35 legislation requires the tribunal to posit, by reference to the circumstances surrounding an individual’s engagement, a hypothetical contract between the recipient of the individual’s services and the individual. The tribunal then has to determine whether, on the basis of the hypothetical contract, an employment relationship arises. In Atholl House, the tribunal made an important finding that certain, apparently key, terms in the written agreement between the BBC and Adams’ PSC, which purported to give the BBC first call over Adams’ services and control over her work should not be included in the hypothetical contract: despite having been written down, the tribunal found that they did not reflect the actual agreement between the parties.
While this approach may not appear ground-breaking, it has added significance in the IR35 context, as traditionally the case law has respected – and attached real weight to – contractual rights in determining whether the recipient of the services can control the service provider irrespective of whether such rights have been exercised. Indeed, this happened in Ackroyd, where the tribunal held that detailed BBC guidelines were incorporated into Ackroyd’s hypothetical contract and were, on this basis, a factor that indicated an employment relationship. Following Atholl House, taxpayers are better placed to argue that rights purporting to give a service user control that have not been exercised should be ignored unless there is an evident intention at the time the contract was made that they should be capable of exercise.
The Atholl House tribunal also placed less emphasis than the Ackroyd tribunal did on the traditional, prescriptive test for an employment relationship, which is derived from Ready Mixed Concrete [1968] 2 QB 497 and based on the so-called ‘irreducible minima’ of employment; namely, mutuality of obligation, personal service and control.
The Atholl House tribunal instead posed the broader question of whether Adams’ engagement, when considered in the context of her wider career, could be differentiated from her other activities, which were all consistent with her operating as a freelancer. The tribunal could not see a basis on which to do so.
While the tribunal also considered the Ready Mixed Concrete test, the focus on this more impressionistic approach, coupled with the Albatel decision, where the tribunal was heavily influenced by Kelly’s ‘star status’ when finding that IR35 did not apply, may provide taxpayers with increased scope to argue for a presumption that individuals who possess unique skill sets and who have historically been self-employed should continue to be regarded in that way in respect of new engagements in the same sphere.
Josh Lom (josh.lom@hsf.com) & Michael Hunt (michael.hunt@hsf.com), Herbert Smith Freehills
The tribunal focuses on the bigger picture in another taxpayer IR35 win.
The First-tier Tribunal decision in Atholl House Productions Ltd v HMRC [2019] UKFTT 242 (TC) concerns the basis on which the television and radio presenter Kaye Adams was engaged by the BBC. It continues the theme of HMRC seeking to invoke IR35 to challenge the use of personal service companies (PSCs) by television and radio presenters. Other well-publicised recent examples of IR35 cases concerning presenters include Albatel [2019] UKFTT 195 (TC), which related to Lorraine Kelly’s engagement by ITV, and Christa Ackroyd Media [2018] UKFTT 69 (TC), another case involving the BBC. Atholl House is by no means the end of the story: further IR35 decisions relating to the engagement of presenters are expected to be handed down in the coming months.
This most recent decision represents a further loss for HMRC, with the First-tier Tribunal finding in favour of the appellant PSC. It is a significant decision, as it demonstrates yet again the difficulties HMRC faces in using IR35 to argue that presenters’ engagements through PSCs should be treated as employment relationships for tax purposes. This was also apparent in Albatel, in which IR35 was held not to apply; and, while HMRC was successful in Ackroyd, the sense that the Ackroyd decision was an outlier has been given further credence following HMRC’s loss in Atholl House.
Comparing Atholl House and Ackroyd, both of which concerned the engagement by the BBC of well-known presenters through their respective PSCs, gives a feel for the types of arguments that taxpayers will be able to muster to resist IR35 claims by HMRC in future. Such claims are likely to become more prevalent following the reforms of the IR35 rules for the private sector, which are due to take effect in April 2020.
The IR35 legislation requires the tribunal to posit, by reference to the circumstances surrounding an individual’s engagement, a hypothetical contract between the recipient of the individual’s services and the individual. The tribunal then has to determine whether, on the basis of the hypothetical contract, an employment relationship arises. In Atholl House, the tribunal made an important finding that certain, apparently key, terms in the written agreement between the BBC and Adams’ PSC, which purported to give the BBC first call over Adams’ services and control over her work should not be included in the hypothetical contract: despite having been written down, the tribunal found that they did not reflect the actual agreement between the parties.
While this approach may not appear ground-breaking, it has added significance in the IR35 context, as traditionally the case law has respected – and attached real weight to – contractual rights in determining whether the recipient of the services can control the service provider irrespective of whether such rights have been exercised. Indeed, this happened in Ackroyd, where the tribunal held that detailed BBC guidelines were incorporated into Ackroyd’s hypothetical contract and were, on this basis, a factor that indicated an employment relationship. Following Atholl House, taxpayers are better placed to argue that rights purporting to give a service user control that have not been exercised should be ignored unless there is an evident intention at the time the contract was made that they should be capable of exercise.
The Atholl House tribunal also placed less emphasis than the Ackroyd tribunal did on the traditional, prescriptive test for an employment relationship, which is derived from Ready Mixed Concrete [1968] 2 QB 497 and based on the so-called ‘irreducible minima’ of employment; namely, mutuality of obligation, personal service and control.
The Atholl House tribunal instead posed the broader question of whether Adams’ engagement, when considered in the context of her wider career, could be differentiated from her other activities, which were all consistent with her operating as a freelancer. The tribunal could not see a basis on which to do so.
While the tribunal also considered the Ready Mixed Concrete test, the focus on this more impressionistic approach, coupled with the Albatel decision, where the tribunal was heavily influenced by Kelly’s ‘star status’ when finding that IR35 did not apply, may provide taxpayers with increased scope to argue for a presumption that individuals who possess unique skill sets and who have historically been self-employed should continue to be regarded in that way in respect of new engagements in the same sphere.
Josh Lom (josh.lom@hsf.com) & Michael Hunt (michael.hunt@hsf.com), Herbert Smith Freehills
