In HMRC v Basic Broadcasting Limited [2024] UKUT 00165, the Upper Tribunal (UT) decided that presenter Adrian Chiles' Personal Service Company, Basic Broadcasting Limited was within IR35. This leaves the presenter exposed to a combined Income Tax and National Insurance Contributions liability of over £1.7m.
- The Upper Tribunal (UT) examined contracts between ITV and the BBC and Basic Broadcasting Limited (the Company) from 6 April 2012 to 5 April 2017 from the perspective of the intermediaries' legislation commonly referred to as IR35.
- In a Hearing in November 2021 before the First Tier Tribunal (FTT) the Company’s appeal was allowed. At that hearing, the only issue was whether Mr Chiles would have been regarded as an employee for Income Tax purposes if his services had been provided under direct contracts between the Company and the BBC/ITV.
- The UT confirmed the three-stage process for determining the application of IR35 as set out by the Court of Appeal in the case of HMRC v Kickabout Productions Ltd [2020] UKUT 0216:
- Stage 1: find the terms of the actual contractual arrangements and relevant circumstances in which the individual worked.
- Stage 2: ascertain the terms of the ‘hypothetical contract’.
- Stage 3: consider if the hypothetical contract would be a contract of employment or a contract for services. This third stage is in turn based on assessing the three issues set out in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] (RMC).
- In the original decision, the FTT found there was sufficient mutuality of obligation and control. But regarding the third RMC criteria, often referred to as ‘personal service’, the FTT found significant evidence that Mr Chiles was in business on his own account. In the appeal, the Company did not challenge the findings of mutuality or control.
- The FTT deferred consideration of HMRC's initial application to appeal until after the decision in HMRC v Atholl House Productions Limtied [2022] EWCA Civ 501 (Atholl House). The grounds for HMRC’s appeal were:
- The FTT erred in its application of the third stage of RMC in considering if Mr Chiles was in business on his own account and it did not put the relevant terms of the hypothetical contracts at the core of its analysis.
- The FTT did not give the correct weight to a number of factors. It should have considered if Mr Chiles was in business on his own account in relation to the specific hypothetical contracts with ITV and the BBC. It also did not properly consider the length of those hypothetical contracts, the extent of the work commitment and the financial dependency generated.
The UT’s findings on the first ground for appeal were:
- The third stage of RMC only becomes relevant if the necessary mutuality and control have been established.
- Central to the current case was the decision in Atholl House where both the FTT and then the UT had made errors. There the Court of Appeal found that:
- An individual can perform similar services both as an employee and as an independent contractor in the same tax year. “It is not the activities that matter but the capacity in which, and the conditions under which, they are performed.”
- The terms and circumstances of other engagements are not in issue.
- The UT had regard for the time commitment but no regard for the terms of the hypothetical contract.
- Activities and therefore status in later years cannot be used to assess whether an individual was employed in earlier years.
- Accordingly, the UT found that the FTT in the current case had focussed unduly on the ‘business on own account’ test and failed to keep the terms of the hypothetical contracts at the centre of its enquiry.
- The FTT took the wrong approach as in the case Atholl House but unlike Atholl House, there was consideration of the terms of the hypothetical contracts. However, it did err in law in its approach to the third RMC stage and the decision was therefore set aside.
- The FTT failed to take into account, and the Company failed to prove whether relevant matters were known or reasonably available to the BBC and/or ITV. The UT called this the knowledge issue. The UT commented this conclusion was not the result of a challenge to the FTT’s evaluative judgement.
On the second grounds of appeal:
- The Company asserted HMRC could not bring a new argument at a late stage with regard to knowledge. But HMRC argued they were not taking a new point. As the Company had advanced no case on this matter, HMRC was not obliged to answer an argument that had yet to be put to the FTT.
- The UT did not accept this argument. It commented that the knowledge issue was not in play until Atholl House identified the restriction on the factors relevant to the third RMC stage. Therefore, it was a new ground of appeal but ultimately its admission or otherwise was not material to the decision to set aside the FTT’s decision. That decision had to be remitted to the FTT or remade by the UT and either way must take account of the knowledge issue because that is the prevailing case law from Atholl House.
- The UT expressed concern about the toll on Mr Chiles because of the prolonged appeal process. It encouraged the parties to agree on as many facts as possible relevant to the knowledge issue during the appeal to reduce the burden of further fact-finding by the FTT. Unfortunately, insufficient additional evidence had been provided to date. The error of law was material and HMRC succeeded on this ground of appeal.
The case was remitted back for reconsideration by the FTT.
The UT observed that RMC was decided over fifty years ago, IR35 was implemented almost 25 years ago and case law continues to evolve. Mutuality of obligations is awaiting clarification by the Supreme Court in HMRC v Professional Games Match Officials Limited [2021] EWCA Civ1370 and the Atholl House case has influenced stage 2 of the assessment and stage three of the tests under RMC.
Despite this 'moving target', taxpayers and their advisers must nevertheless grapple with the application of these rules as do the courts and tribunals. The UT reminded us all that behind the uncertainty and financial exposure is “a very real human cost”.
Useful guides on this topic
IR35
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?
Off-Payroll Working: At a glance (Freeview)
What is Off-Payroll Working? What is IR35? What are the tax rules for Off-Payroll Working or IR35? How do you check your employment status? What is a personal service company?
Off-Payroll Working: PSCs & Public Sector Engagers
The 'Off-Payroll Working' rules move IR35: the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees, away from the worker's company to the End-Client in the labour supply chain.
Personal Service Company (PSC) tax
What is a PSC? What are the tax implications for a PSC and its owners?
Employment status & detailed checklist
Why is it important to check my employment status? What tests should I use? What is the recent case law?
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