The ongoing IR35 battle continues for TV presenter Kaye Adams. Having won her case at both the First Tier and Upper Tribunals, Adams could have reasonably expected the final hurdle to be the recent Court of Appeal (CA) hearing. However, her hopes will have been dashed by its ruling that the case should be remitted to the Upper Tribunal (UT) for a rehearing.
Adams provided services to the BBC via her personal service company, Atholl House Productions Limited (AHP), where she presented the Kaye Adams Programme. HMRC had determined that IR35 applied to the engagement with the BBC in respect of the tax years 2015/16 and 2016/17 and Adams appealed.
The first hearing in favour of Adams was in 2019, where the First Tier Tribunal (FTT) concluded that one should not apply a checklist, but give “consideration of the overall picture which emerges from the accumulated detail”. Significant weight was placed on the fact Adams had been a freelance journalist for 20 years, was not financially dependent exclusively on the BBC, and was simply carrying on her profession as an independent provider of services. HMRC appealed this decision.
When considering IR35, it is the responsibility of the Court to create what is known as the ‘hypothetical contract’ between the individual providing the services and the end client. This is achieved by ‘ignoring’ the individual’s personal service company, the “intermediary” of the Intermediaries legislation. This is necessary because in reality no contract exists between those parties.
The hypothetical contract is formed by taking into account all of the circumstances that form part of the arrangements relevant to an engagement. This includes all contracts in the contractual chain as well as the actual working practices.
In February 2020 the case was heard at Upper Tier Tribunal (UT), which went to great lengths to explain what should be considered when forming a hypothetical contract. The UT drew a clear distinction from the application of Autoclenz Ltd v Belcher [2011] UKSC41 decision (that the contract must reflect the reality of the arrangements, otherwise the contract is a sham) and concluded that the FTT had erred in its approach by not giving sufficient weight to the written contracts. The UT concluded that how the parties conducted themselves may ultimately include additional terms and conditions that need to be considered.
Substantial emphasis was also placed by the UT on the third test of Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance [1968] (RMC), which is that the secondary factors of being in-business and taking financial risk must be consistent with the other terms of the contract. As such, the UT agreed with the FTT’s conclusion that Adams was clearly in no way financially reliant on the BBC and accordingly, AHP was in fact in business on its own account, confirming (in the FT’s opinion) that the hypothetical contract between the parties was a contract for services. Again, HMRC appealed.
In February 2022, the case was heard at the Court of Appeal where their ruling focused on whether the UT’s decision had been reached on the correct basis.
HMRC argued the UT had erred in law in its interpretation of the third condition of RMC which considers other relevant factors, only if the first two conditions are satisfied - one of those factors being "in business on own account". The CA unanimously rejected this interpretation of the law by HMRC.
The CA also concluded that it is not correct to treat the cases of RMC and Hall v Lorimer (1994) 66 TC 349, CA as two separate status tests. This is because both recognise mutuality of obligation and a right of control as necessary pre-conditions for a contract of employment to exist, and if those conditions are met it is then necessary to consider other factors. However, both approaches require an overall assessment of all the relevant factors in a particular case - i.e. both are all multifactorial in their application.
In terms of the FTT’s reasoning and conclusion on the application of Autoclenz, they found the UT’s rejection of this point correct. This was mainly because the UT took into account the absence of any obvious imbalance in the bargaining power between the parties. The CA placed emphasis on two specific clauses within the contract:
- That Adams’ services were not required on an exclusive basis
- That the BBC could withhold consent to Adams working for third parties who were a direct competitor to the BBC
The CA questioned whether these clauses genuinely reflected “what might realistically be expected to occur”. The CA found the FTT was swayed by the fact there had never been any disagreement between AHP and the BBC, and as such, the ability to exercise any right under these clauses within the contract had not occurred. Therefore, concluding that if a contractual right exists, it did not matter that this was not enforced as it still forms part of the agreement.
The CA also concluded that the UT had focused on Adams’ career as a freelancer and had failed to consider fully the relevance of the contractual terms without to her hypothetical contract with the BBC in the two years in question. They also concluded that the contract “should not be construed in a vacuum, but in the light of the admissible factual matrix”; i.e. the facts known to the both parties at the date of the contract. They also highlighted that the UT had looked at periods that were not under examination and that work carried out in later years cannot be used to assess whether she was employed in earlier years.
One final point made by the CA was that “it would certainly be desirable if there were one clear test or approach to determining whether a person was an employee.” This is not the first time a senior court has provided such a view, and emphasises the difficulty employment cases can present when seeking to establish the correct tax and NIC position.
What can we learn from this case?
It is clear that employment status remains complex, and there is an urgent need for HMRC to update its guidance, particularly its Check Employment Status for Tax (CEST) tool, which can be of little use in determining employment status due to the fact it simply does not address all three key tests laid down in RMC, and assumes that mutuality of obligation exists because there is a contract between the parties.
This case also highlights the importance of robust contracts, and to note that simply because a contractual right is not exercised, it will not render it meaningless. More importantly, the importance of the RMC case was further underlined as it still sets the precedent for deciding employment status to this day.
It is still our view that for a typical contractor engaged by one end client for a period before moving on to another, in-business factors would be unlikely to succeed in isolation. The recent TV presenters/broadcaster cases do not reflect the typical engagements that an IT contractor may undertake. Therefore, such cases are of little use for contractors operating in other professions outside of TV and broadcasting.
Contractual terms should always be carefully reviewed and considered to ensure they accurately reflect the working arrangements between the parties. This will play a vital role in establishing the correct application of IR35 and the off-payroll working rules.
Click here to learn more about IR35 and how to determine your IR35 status.
