July 2019 saw the first IR35 showdown between HMRC and radio host Paul Hawksbee of Kickabout Productions Limited (KPL) at the First Tier Tribunal (FTT), to decide whether IR35 applied to contracts falling within the tax years 2012-13 to 2014-15.
2019 recap
Throughout the hearing, there were disagreements between Judge Thomas Scott and Tribunal Panel Member, Mr Baker, with regards to their evaluation of the evidence presented by both parties, making this case more unusual and more difficult to cast the deciding vote. It ended in an important, but narrow, win for Hawskbee. The facts were as follows:
- By the time of the FTT hearing, Hawksbee had been presenting the show for 18 years.
- For three years, 2012-13 to 2014-15, TalkSPORT provided 90% of KPL’s revenue.
- In such years, Hawksbee only worked as a radio presenter for TalkSPORT.
Unfortunately, at Upper Tribunal (UT), following HMRC’s appeal, the court disagreed with the FTT finding and decided that based on the construction of the hypothetical contract between Hawksbee and TalkSPORT, Hawksbee would in fact have been considered an employee . The decision was appealed by KPL, therefore bringing us to the most recent case at the Court of Appeal (CA).
KPL’s grounds of appeal were:
- The UT erred in its interpretation of the contracts as regards the obligation of TalkSPORT to provide work.
- The UT erred in its approach to the jurisdiction to remit or remake the decision.
- The UT erred in its evaluation of the issue of control.
- The UT erred in its approach to the evaluative exercise to be undertaken at stage three of the RMC test.
As part of its appeal, KPL submitted that the UT had considered control over ‘when and where’ the services were provided in differently to the FTT, which had given little significance to such factors due to the nature and practicality of the services undertaken. The FT considered that it was clear, and understandable, that Hawksbee had to be present within the studio in order to access the studio equipment and at the stipulated times due to TalkSPORT’s broadcast running order, meaning that the ‘when’ and ‘where’ elements of control should almost be considered neutral in the context of establishing a framework of control. The most important factor of control being ‘how’ the services are provided.
KPL argued that the ‘the ultimate right to decide’ was also misinterpreted as well as the argument of ‘what’ not being considered at all. The FTT determined that Hawksbee did not have the same control exercised over him as had been identified as being present over presenters in other broadcasting cases.
Unfortunately for Hawksbee, the judge upheld such ‘errors’ by stating: “In my judgment, KPL’s submissions disclose no error of principle or approach by the UT and are in substance no more than an attempt to re-argue the issue. I would accordingly reject this ground of appeal.”
It seems here that KPL’s claim that control hadn’t been properly considered wasn’t really at the forefront of the CA’s considerations either. The main argument considered stemmed from mutuality of obligation being a major factor due to the amount of time spent working for TalkSPORT over a period of 18 years, as well as having to provide 222 days’ worth of service.
The judge agreed with the UT by stating: “The express terms of the contracts whereby TalkSPORT engaged KPL to provide the services of Mr Hawksbee on the terms discussed above are well capable of including, as a matter of construction of the contracts, an obligation on TalkSPORT to offer the number of programmes that Mr Hawksbee was required to present. In my judgment, the UT was correct to hold that they did contain that obligation.”
What can we learn from this case?
Mutuality of obligation has become more prominent in recent cases. The big question is will this steer HMRC to rethink its stance on this factor and ultimately amend its own Check Employment Status Tool (CEST), which fails to address this test? That remains to be seen.
With HMRC now seemingly on a roll with several recent high-profile IR35 wins under its belt, will we now see a more aggressive approach from the department with regards to compliance in this area? As has always been our advice, a careful and considered review of contracts and working practices relevant to all engagements is a must to correctly understand the true IR35 position.
Click here to learn more about IR35 and how to determine your IR35 status.
