Kevin Read reviews recent cases involving entertainers as the death knell sounds for IR35.
From 6 April 2020, the government intends IR35 to become a dead issue for those operating via personal service companies (PSCs), unless the PSC is contracting with a private sector ‘small’ client (as defined in Companies Act 2006).
In a nutshell
Any work for larger clients will be covered by the ‘off-payroll’ rules that have applied since 6 April 2017 for PSCs contracting with public sector bodies. These rules mean that the engager must determine whether there would be an employment relationship with the worker if the PSC were not there and, if so, deduct payroll taxes when paying the PSC. Thus, the tax risk is with the engager rather than the PSC.
A determination under IR35 or the off-payroll rules hinges on the normal tests for employment status, in particular:
- whether there is significant mutuality of obligation between the worker and the engager; and
- how much control is exercised by the latter over the former.
Recent IR35 cases
Here is a brief summary of recent IR35 cases concerning those in the entertainment industry.
Big Bad Wolff Limited v HMRC [2019] UKUT 121
This case concerned the PSC of the actor Robert Glenister. If not operating via a PSC, Mr G would, as a matter of general law, be a self-employed actor. However, if he contracted directly with a client and was paid a salary, he would have been treated as an employed earner for National Insurance contributions (NICs) purposes under the regulations for actors that were in force until 5 April 2014.
The appeal to the First-Tier Tribunal (FTT), on the basis that IR35 only applied to what would be (in the absence of the PSC) real employment arrangements, not deemed ones, was dismissed. The PSC was therefore liable to pay total primary and secondary Class 1 NICs of almost £150,000 for the ten-year period to 5 April 2014.
BBW Ltd recently appealed unsuccessfully to the Upper Tribunal, so any worker who might have fallen within the scope of the NICs categorisation regulations should be careful that they do not have similar exposure if operating via a PSC, which may be liable for NICs even where the underlying arrangement was a self-employed one for income tax purposes.
Albatel Ltd v HMRC [2019] UKFTT 195 (TC)
This case concerned the PSC of Stephen Smith and his wife Lorraine Kelly (LK), the well-known television presenter. HMRC said that IR35 applied to the work she did for ITV on the programmes ‘Daybreak’ and ‘Lorraine’.
LK said she was a freelance entertainer and, in particular, that:
- she had significant editorial control over the programmes;
- she decided her own hours outside broadcast time; and
- ITV was under no obligation to pay her if she was unable to present the show.
The FTT, in allowing her appeal, concluded that the level of control was ‘substantially below the sufficient degree required to demonstrate a contract of service’. It held that ITV engaged LK as a ‘brand’ and that, rather than being a de facto employee, she was like a freelance theatrical artist.
Atholl House Productions Limited v HMRC [2019] UKFTT 242 (TC)
This case concerned the PSC of Kay Adams (KA), a well-known ‘Loose Women’ television personality. HMRC argued that IR35 applied to her work for BBC Radio Scotland, where she presented a weekly show. The PAYE and NICs at stake totalled almost £125,000 over two years.
Again, HMRC was unsuccessful, the FTT allowing the taxpayer’s appeal. The judge helpfully explained why he reached a different conclusion to that in last year’s Christa Ackroyd Media Ltd v HMRC [2018] UKFTT 69 (TC), which concerned the IR35 status of a BBC ‘Look North’ presenter, Christa Ackroyd (CA):
- CA’s contract was seven years long; KA had two one-year contracts;
- essentially all of CA’s income came from the BBC contract; for KA, it was 30-50% of gross income;
- CA had a clothing allowance, unlike KA;
- the BBC had first call on CA’s time, she attended BBC training and was told by the BBC whom to interview, none of which applied to KA;
- unlike CA, KA did not require the BBC’s consent to take on other engagements.
Conclusion
HMRC has lost the vast majority of recent IR35 cases, which leads one to wonder if they properly understand the rules that they are trying to enforce. Unfortunately, as the private sector moves to dealing with the off-payroll rules, it seems unlikely that status issues will become any less controversial.
