• Eoin Holohan

IR35 Case law Roundup: Here’s What the Courts Say About Contract Workers

Updated: Apr 17


Is this worker operating under a genuine contractor arrangement – or should it be classed as a case of ‘deemed employment’ to be taxed accordingly?


This is always the tax inspector’s main concern if you ever find yourself targeted for an IR35 investigation. As such, you can expect both your contract and your real-life working practices to be subjected to detailed scrutiny: a major reason why access to experienced contractor accountants can be so reassuring.


But of course, just like everyone else, HMRC is expected to follow the rule book. And when assessing your IR35 status, this means abiding by the 2000 Intermediaries Legislation, and following the rulings of the tax tribunal on how those rules should be interpreted.


A review of case law helps IR35 contractors and contractor accountants in two main ways. First off, it gives you an indication of the prospects of success should you go down the route of challenging an unfavourable IR35 decision. Secondly, it can provide vital clues on how best to restructure your existing working arrangements to stay outside of IR35.


To illustrate how IR35 is currently being interpreted, here’s a roundup of some of 2019’s most significant legal decisions…


The BBC News Presenter Case

Paya Limited and others v. HMRC [2019] UKFTT


Background


This case concerned a trio of BBC news presenters, Tim Willcox. Joanna Gosling and David Eades, each of whom had set up their own personal service company (PSC). For a number of years, the presenters supplied their services as news presenters through a series of contracts between the PSCs and the BBC.


HMRC maintained that the presenters were ‘deemed employees’ and that IR35 applied. Rejecting the presenters’ appeal, the First-Tier Tribunal (FTT) found that the arrangements between the PSCs and the BBC did in fact create an employment relationship – and that IR35 did indeed apply.


Key points


In reaching its decision, the FTT placed particular focus on the following elements of the presenters’ contractual arrangements:

Mutuality of obligation (MOO): the extent to which the employer is obliged to provide work, and the existence of a corresponding obligation on the part of the worker to carry it out.


On the MOO point, the FTT noted that the presenters had provided their services consistently over periods of between five and seven years. This had been through a series of contracts, all of which had featured the same or very similar terms. Under those contracts, the BBC had to provide work for a minimum number of days. Likewise, the presenters were obliged to make themselves available for those days.


Control: the extent to which the employer can control and direct how, when and where work is carried out. The stronger the degree of control, the greater the likelihood of IR35 applying. If there are provisions restricting the worker’s ability to take on work from other suppliers, this may also be a significant indicator of deemed employment.

The presenters had to abide by the BBC’s strict editorial standards. They also had to attend meetings, training and appraisals. Of particular importance was the non-compete provisions within the arrangement which stopped the presenters from working for other broadcasters. All of this combined to provide pretty convincing evidence of the level of control one would expect to see in an employee/employer relationship.


Personal service: whether the employee is required to provide their services personally – or whether the arrangements include a ‘right of substitution; i.e. the ability of the worker to send in a replacement or engage a helper.


The FTT noted that the presenters had no real scope for drafting in substitutes to carry out the work on their behalf.


The ITV Presenter Case

Canal Street Productions Limited v The Commissioners for Her Majesty’s Revenue & Customs [2019] UKFTT


Background


This case concerned TV presenter, Helen Fospero, who works for a number of broadcasters. HMRC was attempting to recover around £80,000 in unpaid taxes and NICs relating to a two year period when she worked as an ITV presenter on shows including Daybreak and Lorraine.

In contrast to the case involving the BBC presenters, the FTT in this instance decided that Fospero was indeed an independent contractor, and that her arrangement fell outside of IR35.


Key points


In the contract, ITV stated that it “anticipate(d) requiring the service of the Individual for 20 News Presenter Appearances per annum”. Likewise, Fospero agreed to provide services on a “first call” basis.


HMRC attempted to argue that this indicated a guarantee of work that Fospero was obliged to undertake. The FTT rejected this argument. ITV was not actually guaranteeing anything, and nor was Fospero under obligation to accept anything – hence no clear evidence of any MOO. It was merely an expression of an ‘intention’ that work would be available.


Control: Of particular relevance was that unlike employed presenters who were kitted out with laptops, workstations, ITV email addresses and more generous expenses allowances, Fospero had no such benefits. She would work on a project by project basis, often involving just a few hours in the studio. These assignments sometimes involved preparation work – but it was up to Fospero to decide how, when (and indeed if) this prep was carried out. So long as she sought the approval of ITV, she was also free to pursue work with other broadcasters.


In the FTT’s view, this was a bona fide freelancer relationship. The fact that Fospero’s working arrangements were markedly different to those of actual ITV employees was key in causing the panel to conclude that she fell outside IR35.


The IT Consultant Case

RALC Consulting v HMRC [2019] TC7474


Background

Between 2010 and 2015, operating through his company RALC Limited, Richard Alcock was contracted for Accenture and the Department for Work and Pensions, and was deployed mostly on the Universal Credit IT project. For this arrangement, HMRC was attempting to recover sums of around £160,000 and £75,000 for Income Tax and NICs respectively. Rejecting HMRC’s arguments, the FTT was satisfied that Alcock was indeed a self-employed contractor.


Key points


MOO was a deciding factor in this case. For one thing, Alcock’s contract specifically stated that he would only be paid for work that was successfully completed. And in fact, there was one instance where an assignment has stopped early by Accenture, which meant that Alcock was not paid for ten days’ work already completed. His clients were not obliged to provide him with any guaranteed volume of work – and Alcock was not obliged to accept anything.


Regarding personal service, Alcock was also able to show how on one occasion, he had arranged the hire sub-contractor (although ultimately, this sub-contractor took up a different position elsewhere). The FTT was satisfied that Alcock did have a right of substitution, albeit he still needed the clients’ approval on substitute selection.


Check your IR35 position


What’s striking from the case law is the absence of hard and fast rules on IR35 status determination. Each case hangs on its own facts, and seemingly minor pieces of evidence (an email exchange between you and your client, for instance) can make all the difference in determining the outcome.


Let’s say, for instance, that your existing contract contains detailed direction on how and where work is to be carried out. Is there a sound business reason for this? Could it be optimised to reduce the inference of ‘control’? Do you really need to stipulate that x number of hours will be worked each month and thereby potentially putting you at unnecessary risk of an adverse finding on the MOO point?


Instructing contractor accountants with specific IR35 expertise can help you significantly reduce the chances of an unfavourable determination. For an expert review of your contract requirements, and a no-obligation chat about your IR35 position, speak to MJH Accountancy today.

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