HMRC are celebrating a photo-finish IR35 win at the tax tribunal in respect of three BBC presenters. But the court’s difficulty in coming to a decision may foreshadow an impending administrative nightmare facing thousands of UK private sector businesses as of April 2020.
Joanna Gosling, Tim Willcox and David Eades, all presenters on rolling news channel BBC News, launched the appeal after HMRC determined that they were working as “disguised employees” and as such had been using limited companies to avoid tax and National Insurance for overlapping periods between 2006 and 2014.
The three presenters had been compelled to set up the companies some years earlier by the corporation, without being informed about the associated IR35 compliance implications. All of the presenters were described by the BBC as self-employed people who worked as freelance journalists and had previously been working as sole traders for the corporation.
With one judge dissenting, the First-Tier Tax Tribunal (FTT) found narrowly in favour of HMRC, with the senior judge, Judge Harriet Morgan, having to make the casting vote. However, some of the contracts that HMRC had questioned were adjudged to be “outside IR35” – by implication, HMRC had incorrectly assessed them as employed – and the court also found that the presenters had acted “in good faith” and had not acted carelessly, meaning that some of the disputed tax was uncollectable as HMRC had sought to charge it outside of their statutory time limits.
Commenting on the verdict in a joint statement, the presenters said: “We are both pleased and relieved to say that the Tribunal has … found that we acted in good faith, dismissing HMRC’s claim that we – or our accountants – were careless about our tax affairs in any way. As a result, the Tribunal ruled that HMRC could not pursue its tax demands for a number of the years in question. We are delighted that our accountants were also deemed to have acted in good faith throughout. Given some of these findings, we are considering with our legal advisers whether to appeal.
“We have endured eight years of HMRC investigation and eventual determinations to reach this point on what is clearly a difficult and unclear subject even for judges. It has been a depressing and stressful period for each of us. However, we are grateful that the judgement, in its entirety, shows we have acted in good faith throughout.”
The difficulty that the tribunal had in coming to a decision serves well to illustrate the complexity of making IR35 determinations, and, as a consequence, the timing of the decision may be awkward for the government, who published draft legislation earlier in the year that will shift responsibility for making the difficult IR35 assessments away from a contractor or freelancers themselves and on to the employer – the companies that hire them, a service company or recruitment agencies.
Many industry bodies believe that business is ill-prepared for the “Off-Payroll” rules, that will take effect from 6th April 2020. The Law Society believes that the new rules will shift “significant risks onto taxpayers” and “should be reconsidered”, whilst the Association of Chartered Certified Accountants (ACCA), the Institute of Chartered Accountants in England and Wales (ICAEW) and KPMG all called for a delay to the implementation of the tax rules but were subsequently ignored by government.
Speaking in June, ACCA’s policy manager for Europe, Lilly Aaron, said: “On the surface this legislation aims to tackle contrived working practices that may disguise the true nature of the relationship between a worker and client. In practice however, this reform could create a complex web of new rules and liabilities throughout supply chains causing confusion over employment status and where tax liabilities rest.”
One of the few other cases where the FTT could not return a unanimous verdict also related to IR35.
Commenting on the tribunal’s recent decision, Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), said: “Given that two tribunal judges took opposing views … surely this just goes to illustrate how unfair it is to expect businesses to make IR35 determinations themselves.
“If FTT judges can’t reach an easy conclusion, how on earth can firms – without access to expertise – be able to reach a conclusion?”
Joe Tully, of IR35-specialists Brookson Legal, agreed: “Three High Court judges were unable to agree here, which shows how complex the IR35 rules are. [They] can be extremely difficult to interpret”.
The three presenters will now be required to settle tax liabilities for unpaid income tax and National Insurance reaching into the tens of thousands of pounds to settle their current tax status balance sheet.
The decision hinged on three key employment status indicators: Mutuality of Obligation, which covers the obligation to pay a contract worker (and for the worker to turn up) even if their usual contract work has come to an end, encompassing the right to terminate the contract by both parties and the ability to second workers to unrelated projects; Personal Service, which concerns the right to send a substitute worker to carry out the contract service; and the Control criterion, summed up neatly by barrister Keith Gordon in the earlier IR35 case of Lorraine Kelly in respect of self-employed contract assignments by giving the analogy of a gardener who can be told where to plant or when to prune but if asked to serve dinner, an employee would be unable to refuse but a self-employed contract worker could.
The mutuality of obligation test was deemed to have been satisfied due to the work arrangements continuing through “gap” periods between written contract of service, and the fact that the BBC would have been obliged to pay the presenters even if a “minimum requirement” of days stipulated in the contract was not met.
The personal service criterion was clearly met by the fact that the BBC was hiring the services of the individual presenters, notwithstanding the fact that the presenters could have refused a slot and asked others to stand in for them as per the contract working rules.
The control test was met because the BBC had the right of control “over the Presenters in all relevant respects, namely, as a result of the right to direct where and when they did a shift, the right to direct how they did their work under the editorial chain and the extensive restrictions on their outside activities.”
However, some of Mr Willcox’ contracts were deemed to have been performed on a genuinely self-employed basis, because he had “much more control” on the BBC World programme than on flagship programmes like the News At Ten, where he “would ‘write headlines, lead-ins’ and do ‘all [his] own interviews’ and he probably would not discuss any of the questions or areas with producers and editors because that would be left to him”.
The dissenting judge, Judge Andrew Perrin, adopted the approach set out in key IR35 case Hall v Lorimer of “painting a picture from the overall accumulation of detail”, and concluded that the balance tipped in favour of the presenters, not least due to the following factors:
- The presenters had no guarantee of renewing each contract and, in many cases, there was a gap between each contract;
- The presenters had flexibility in their working rules or patterns of contract work in that they were able to refuse or swap slots or arrange for other presenters to take their place;
- The presenters had considerable autonomy, as highly skilled journalists, in conducting live news broadcasts and, when acting in the field, on occasions they could be considered as having complete autonomy;
- The presenters had no holiday, sick or maternity pay, pension, mobile phone or company car provided by the BBC and only limited insurance cover and no offer of premium rates for any overtime/additional work performed;
- The presenters could “seek to use their journalistic talents elsewhere”;
- The imbalance of bargaining power was seen as a significant factor. The BBC were in a unique position and used it to force the presenters into contracting through limited companies and to accept reductions in pay.
The case marks a new chapter in a long-running saga between the BBC and its contractor workers, following an IR35 case earlier in the year involving BBC Look North presenter Crista Ackroyd, revelations in 2016 that over one hundred BBC presenters were being targeted for IR35 by HMRC, and chaos caused by the implementation of Off-Payroll – which has already been rolled-out in the public sector – at the corporation, culminating in an open letter to BBC director Tony Hall by 170 presenters complaining about the corporation’s handling of the new tax rules. A subsequent House of Commons Culture Committee hearing heard evidence from an anonymous BBC presenter who had tried to kill herself due to the stress caused by the new tax regime.
A BBC spokesperson said: “We want to help presenters resolve any historic tax issues they face because of the way their employment status is now being assessed. We are reviewing the judgment and will work with each of the presenters to agree how we will help them.
“We have acknowledged that many years ago the BBC introduced a policy of engaging certain freelance presenters through [limited companies] where they were understood to be self-employed. We have also said that where people now face a challenge as a result of this, we want to put this right as quickly and effectively as possible. We understand and regret the stress this has put people under, and have set out the principles of how we will help presenters in a way that is fair to the individuals involved, to HMRC and to licence fee payers.
“Recent hearings involving presenters from across the media industry have produced a range of outcomes and this split judgment further demonstrates the confusion of the tax system for those working in broadcasting.
“We have tried for a long time to agree a set of guidance with HMRC which gives certainty for the media industry. It’s vital that HMRC now provides the greater clarity which is still needed to avoid others having to go through this ordeal.”
23rd September 2019.