Sarah Laing looks at a recent tax case where the intermediaries legislation cost a taxpayer nearly half a million pounds in back taxes and National Insurance contributions.
In February 2018, HMRC won a significant appeal concerning the application of the intermediaries legislation to BBC television presenters. In Christa Ackroyd Media Ltd v the Commissioners for Her Majesty’s Revenue and Customs [2018] UKFTT 0069, the First-tier Tribunal (FTT) ruled that the legislation (known as the ‘IR35’ rules) applied to the arrangements under which the BBC contracted one of the presenters of the regional news programme Look North.
Background
This case concerned demands issued by HMRC, relating to income tax and National Insurance contributions (NICs) for the tax years 2006/07 to 2012/13, for some £419,151.
The presenter provided her services to the BBC via her personal service company (PSC) (i.e. Christa Ackroyd Media Ltd (CAM)), and was engaged under a seven-year contract with the BBC to provide her services on up to 225 days per year.
The court documents showed that it was the BBC who suggested she should work using a PSC and other presenters had previously used similar contracts.
In addition to her presenting fees, the BBC also paid the taxpayer a £3,000 annual clothing allowance, and her contract restricted her from working for other organisations without permission.
The BBC also requested that she stop writing a column for the Sunday Express and a payment of more than £40,000 was made that ‘appears to have been linked’ to her giving it up.
Hypothetical contract
This appeal was specifically concerned with a ‘hypothetical contract’. HMRC argued that such a contract between the BBC and the appellant would have been a ‘contract of service’ rather than a ‘contract for services’, that her status was that of employee, and that CAM Ltd should therefore account for tax and NICs accordingly. The taxpayer however, contended that she was a self-employed contractor, and there was no further liability on the part of CAM Ltd.
The FTT found that the hypothetical contract would have been a contract of employment. Such factors as:
- mutuality of obligation;
- control of what, when, where and how the taxpayer performed her role;
- the right of substitution; and
- whether the taxpayer was in business on her own account,
were all considered in depth.
In his ruling, the tribunal judge said that a hypothetical contract of seven years, for at least 225 days per year, and terminable only for a material breach, pointed towards a contract of employment. In particular, the length of the contract was ‘pursuant to a highly stable, regular and continuous arrangement’. It involved a high degree of continuity rather than a succession of short term engagements.
However, he also went on to say that the fact the fees were payable on a monthly basis, akin to the way an employee might be paid, was significant. The absence of any provision for holiday, sick pay or pension entitlement was also not regarded as being significant.
The BBC’s ability to exert ‘control’ over the taxpayer, along with the fact that there was a seven-year contract for what was effectively a full-time job, were highlighted as being significant factors in the tribunal’s findings that the taxpayer was an employee under a hypothetical contract.
Conclusion
While this ruling does not set legal case law, it marks the first time, in seven years, that the HMRC have won a case relating to IR35 rules. It particularly emphasised the importance of looking at the factors of employment status as a whole, rather than the individual elements.
HMRC are in the process of investigating about 100 similar cases. If successful, we may see the net cast more widely.
Practical Tip:
Whilst the FTT has said this is not a lead case as such, it is a significant ruling as, not least, it indicates that the IR35 rules can be enforced where HMRC see fit to do so. Anyone operating through a PSC should be aware of the various issues affecting employment status.
