Kaye Adams has defeated HMRC for the third and final time in what has been a long-running and burdensome IR35 ordeal spanning nearly 10 years, in respect of a tax liability of £125,000 but an astounding estimated £250,000 in legal fees.
Following this latest FTT judgment, HMRC have finally accepted defeat by throwing in the towel, confirming that they will not appeal further, bringing a welcome end to their dogged pursuit of Kaye Adams and her business.
Adams provided services to BBC Radio via her personal service company, Atholl House Productions Limited, 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.
Given the length of time this case had been ongoing, it is useful to provide a quick recap on events.
First Tier Tribunal win
After HMRC issued tax and National Insurance Contribution (NIC) determinations, Adams appealed the decisions, and the case was heard in her favour at the First Tier Tribunal (FTT) in 2019. The tribunal concluded that Adams was simply carrying on her profession as an independent provider of services. These included a number of engagements outside of her BBC contract, suggesting that she was a freelance journalist for 20 years and was not financially dependent exclusively on the BBC. HMRC appealed.
Upper Tribunal win
Following an appeal made by HMRC to the Upper Tier Tribunal (UT), the case was heard again in February 2020 where they went to great lengths to explain what should be considered when forming a hypothetical contract.
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 their client. This is achieved by ignoring the individual’s personal service company because, in reality, no contract exists between those parties.
The hypothetical contract is formed by taking into account all of the circumstances that form the arrangements relevant to an engagement. This includes all contracts as well as the actual working practices. The UT drew a clear lesson from the application of Autoclenz Ltd v Belcher  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.
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  (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.
The UT agreed with the FTT’s conclusion that Adams was clearly in no way financially reliant on the BBC and accordingly, Atholl House Productions Limited was in fact in business on its own account, confirming the FTT’s opinion that the hypothetical contract between the parties was a contract for services. Again, HMRC appealed.
HMRC appeal to Court of Appeal
Surprisingly, HMRC appealed again and the case was heard by the Court of Appeal in February 2022 in what was hoped to be the end of the long-running battle with HMRC. Their ruling focused on whether the UT’s decision had been reached on the correct basis.
The Court of Appeal concluded that the UT had focused on Adams’ career as a freelancer and had failed to consider fully the relevance of the contractual terms. It 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 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.
Unfortunately, this was not the final hurdle for Adams, as the court ruled the case should be remitted to the UT for a rehearing.
In October 2022, the tribunal decided the case should be remitted to the FTT and heard, if practicable, by the same panel as the original hearing, with permission for further facts and further evidence to be allowed.
First Tier Tribunal win again
The FTT approached the decision as a three-stage process:
Stage 1 - the actual written contracts, where it was decided that there was no reason to reach a different conclusion from the one reached by both the UT and the Court of Appeal as there was nothing in the evidence that might alter the conclusions already drawn.
Stage 2 – the hypothetical contract between the BBC and the worker Kaye Adams. The FTT held that after considering the new evidence, together with the original evidence, the terms of the hypothetical contracts were exactly the same as those found by the UT.
Stage 3 – apply the three limbs of the test laid down by MacKenna J in RMC referred to as 3A-C.
3A mutuality of obligations
It was determined by the FTT that Stage 3A had already been determined in favour of HMRC by the UT and the Court of Appeal.
Stage 3A was satisfied because the BBC would have been obliged to pay a minimum fee even if Adams failed to achieve the minimum commitment and there was an obligation of personal service.
Again, the FTT concluded that even if they were entitled to consider Stage 3B afresh, and not be bound by the decisions of UT and Court of Appeal, they would still conclude 3B was satisfied.
Under the hypothetical contract the BBC had the control to determine the ‘what’ by means of the form and content of the programmes. It also controlled the ‘where and when’. The BBC had the right of first call on Kaye Adams’ services, and although it was obliged to act reasonably in accommodating her other engagements, it could withhold consent at its discretion.
In relation to ‘how’, it had been established that the BBC had relatively ‘modest control’ and reliance was placed on the case of Montgomery v Johnson Underwood CA 2001 on the basis that real time control was not necessary for this part of the control test to be passed. In HMRC’s view, although Adams was considered an expert, control over the ‘how’ did exist on the basis that there was “some sufficient framework of control” held by the BBC, such as the requirements to adhere to guidelines and standards.
3C the other terms of the hypothetical contracts
The FTT concluded that although finely balanced, there were more features indicative of self-employment than employment. These included more time for other engagements outside of the BBC than was expected under each written agreement, that the general consensus within the BBC was that presenters of her position were self-employed. In essence she had carried on her profession as an independent contractor. In addition, Adams had, for many years, earned considerable income from a number of different clients.
"We always advise that contractual terms are carefully reviewed and considered to ensure they accurately reflect the working arrangements between the parties"
So, what can we learn from this case?
Having considered all of the judgments, Kaye Adams’ independence and “own brand” was the deciding factor in her IR35 win again against HMRC. While this is undoubtedly good news, this judgement will have limited value to contractors operating outside of TV and broadcasting.
For a typical contractor placing reliance on in-business factors and intention of the parties is not something we would recommend – this case has already been through four separate hearings which shows just how difficult it can be to achieve a decision without one of the core IR35 fundamentals.
The control test in respect of experts has historically been argued by HMRC to be of limited value (as even employers cannot control employees); and this was argued to some extent in this case. However, the tribunal did not simply disregard control in its judgment in favour of HMRC’s submission. The tribunal re-affirmed that the current case precedent seeks to apply the fundamentals of ready-mixed concrete in all cases when one is determining IR35 or status.
As can be seen by this case, without the right terms supported by strong working practices, a contractor could face years of HMRC argument and tribunal litigation before a final result is capable of being delivered.
We always advise that contractual terms are 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.
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