The ‘intermediaries legislation’, commonly known as IR35, has proved an area of considerable legal uncertainty and worry for taxpayers in recent years. Although there is already a plethora of reported cases which provide some guidance, the majority of these cases are at First-tier Tribunal (FTT) level and therefore do not create binding precedent. This makes the recent guidance provided by the Upper Tribunal in HMRC v Atholl House Productions Ltd [2021] UKUT 37 (TCC) particularly welcome.
The facts were similar to those in previous decisions. Kaye Adams is a television and radio presenter, best known for her role in the discussion show Loose Women on ITV. In the two tax years at issue, she worked through a personal service company (PSC) which provided her services to BBC Radio Scotland where she hosted a regular programme called The Kaye Adams Show. HMRC argued that the IR35 rules applied to this arrangement.
As is usually the case, the sole issue was whether the circumstances were such that if Ms Adams had provided her services under a direct contract she would have been regarded as a BBC employee. This involves three stages of analysis, beginning with the interpretation of the ‘real contract’ entered into between the BBC and the PSC. The second step is then to consider what would have been the terms of the direct ‘hypothetical contract’ between Ms Adams and the BBC presumed in the legislation. The third step is to consider whether this contract, as a matter of law, is one of employment using the familiar Ready Mixed Concrete ([1968] 2 QB 497) test, i.e:
HMRC lost in the FTT in April 2019. It appealed to the UT on a range of grounds. It argued, in particular, that the FTT had erred in the first step in the way in which it had analysed the existing contractual relationship between the parties. HMRC also argued that the FTT had wrongly applied the second and third limbs of the Ready Mixed Concrete test in the assessment of whether the BBC had retained ‘control’ and whether Ms Adams had been ‘in business on her own account’.
The ‘real contract’ had contained some extremely restrictive terms which had never been enforced or even understood in practice, including a right to prevent Ms Adams taking on work for other clients. Although the reality of the relationship was relevant at the second step, the UT confirmed that the FTT was wrong to depart from the ordinary principles of contractual interpretation in the first step of the analysis and accordingly arrived at the wrong result at the second step. At the third step (i.e. the analysis of the hypothetical contract as one of employment or not), the UT proceeded to consider the Ready Mixed Concrete principles and agreed that the BBC had retained ‘control’ over Ms Adams even if she had a significant degree of autonomy in performing her role in practice (such as determining the content of the show and also the direction each episode took).
For taxpayers, one of the most interesting considerations is what was involved in being ‘in business on her own account’. The UT re-affirmed that this requires a ‘rigorous’ rather than a purely ‘impressionistic’ assessment since it serves to rebut a presumption already established in the first two limbs. It considered that Ms Adams had been working as a freelancer in previous years and that the fact that most of her time and income derived from the BBC contract in the particular tax years under enquiry did not negate this. Although agreeing with HMRC on many of their other points, it ultimately concluded that Ms Adams could only have been self-employed.
Although the guidance provided in Atholl House is welcome, it serves to re-emphasise the degree of uncertainty created by the IR35 rules. It is instructive to compare the similarities of the arrangements to which Ms Adams was a party to those of the unsuccessful taxpayers in other recent UT decisions, such as Kickabout Productions Ltd v HMRC [2020] UKUT 216 (TCC). It remains to be seen how much comfort this will be to other taxpayers in a similar position.
Hugh Gunson & Guy Bud, Charles Russell SpeechlysThe ‘intermediaries legislation’, commonly known as IR35, has proved an area of considerable legal uncertainty and worry for taxpayers in recent years. Although there is already a plethora of reported cases which provide some guidance, the majority of these cases are at First-tier Tribunal (FTT) level and therefore do not create binding precedent. This makes the recent guidance provided by the Upper Tribunal in HMRC v Atholl House Productions Ltd [2021] UKUT 37 (TCC) particularly welcome.
The facts were similar to those in previous decisions. Kaye Adams is a television and radio presenter, best known for her role in the discussion show Loose Women on ITV. In the two tax years at issue, she worked through a personal service company (PSC) which provided her services to BBC Radio Scotland where she hosted a regular programme called The Kaye Adams Show. HMRC argued that the IR35 rules applied to this arrangement.
As is usually the case, the sole issue was whether the circumstances were such that if Ms Adams had provided her services under a direct contract she would have been regarded as a BBC employee. This involves three stages of analysis, beginning with the interpretation of the ‘real contract’ entered into between the BBC and the PSC. The second step is then to consider what would have been the terms of the direct ‘hypothetical contract’ between Ms Adams and the BBC presumed in the legislation. The third step is to consider whether this contract, as a matter of law, is one of employment using the familiar Ready Mixed Concrete ([1968] 2 QB 497) test, i.e:
HMRC lost in the FTT in April 2019. It appealed to the UT on a range of grounds. It argued, in particular, that the FTT had erred in the first step in the way in which it had analysed the existing contractual relationship between the parties. HMRC also argued that the FTT had wrongly applied the second and third limbs of the Ready Mixed Concrete test in the assessment of whether the BBC had retained ‘control’ and whether Ms Adams had been ‘in business on her own account’.
The ‘real contract’ had contained some extremely restrictive terms which had never been enforced or even understood in practice, including a right to prevent Ms Adams taking on work for other clients. Although the reality of the relationship was relevant at the second step, the UT confirmed that the FTT was wrong to depart from the ordinary principles of contractual interpretation in the first step of the analysis and accordingly arrived at the wrong result at the second step. At the third step (i.e. the analysis of the hypothetical contract as one of employment or not), the UT proceeded to consider the Ready Mixed Concrete principles and agreed that the BBC had retained ‘control’ over Ms Adams even if she had a significant degree of autonomy in performing her role in practice (such as determining the content of the show and also the direction each episode took).
For taxpayers, one of the most interesting considerations is what was involved in being ‘in business on her own account’. The UT re-affirmed that this requires a ‘rigorous’ rather than a purely ‘impressionistic’ assessment since it serves to rebut a presumption already established in the first two limbs. It considered that Ms Adams had been working as a freelancer in previous years and that the fact that most of her time and income derived from the BBC contract in the particular tax years under enquiry did not negate this. Although agreeing with HMRC on many of their other points, it ultimately concluded that Ms Adams could only have been self-employed.
Although the guidance provided in Atholl House is welcome, it serves to re-emphasise the degree of uncertainty created by the IR35 rules. It is instructive to compare the similarities of the arrangements to which Ms Adams was a party to those of the unsuccessful taxpayers in other recent UT decisions, such as Kickabout Productions Ltd v HMRC [2020] UKUT 216 (TCC). It remains to be seen how much comfort this will be to other taxpayers in a similar position.
Hugh Gunson & Guy Bud, Charles Russell Speechlys
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