As you may have seen in the news the broadcaster Adrian Chiles has won his long-standing case against the Revenue following a tax tribunal ruling that he was not an employee of the BBC and ITV for tax purposes and was instead ‘in business on his own account’ operating through his personal service company Basic Broadcasting Limited. The case is a significant one on the issue of IR35 status determination.
The IR35 rules require that employment taxes be paid by people who provide services to a business through a PSC or other intermediary if that person would otherwise have been regarded as an employee for tax purposes of the engaging business. From 6 April 2021, engaging businesses became liable for determining whether the IR35 rules apply, operating PAYE and paying employers' NICs for contractors falling within the scope of the rules.
The Times reports on the case. HMRC had argued that the IR35 rules applied to contracts that Chiles had with both the BBC and ITV to provide TV and radio presenting working between 2012 and 2017 - the contracts were with Chile’s personal service company. HMRC considered that Chiles should have been taxed as an employee due to the nature of his work with both the BBC and ITV. The tax tribunal rejected that argument and has ruled that Chiles was instead ‘in business on his own account’.
The FT reflects on the Revenue’s patchy record of IR35 litigation and its pursuit of high-profile broadcasters it has argued have been working as ‘disguised employees.’ Pinsent Masons tax lawyer Penny Simmons is quoted saying the problem lies with the IR35 rules which are notoriously difficult to understand and have caused a lot of uncertainty for businesses, individuals as well as HMRC. She says she doesn’t think it is necessarily that HMRC is applying the rules incorrectly, rather it’s just that the rules are complicated.
Penny expands on that in her article for Outlaw. She says one of the difficulties with IR35 is that there is no single definition of employment status for tax purposes, rather it is necessary to look at a number of factors together. That holistic approach has proved too much for the Revenue and employers face exactly the same problem when they try to apply the rules and make correct status determinations.
So, let’s pick up on that. Penny joined me by video-link to discuss the case and what it means for employers going forward:
Penny Simmons: “The reason I talk about these rules being complex is I am talking about the rules for working out whether somebody is an employee for tax purposes, which sits within the IR35 rules, and the reason why these rules are complicated is that there is no specific definition of employment status for tax purposes. You have to look at a series of factors and you have to look at all the circumstances of the case to work out whether somebody is or isn't an employee for tax purposes. Now, we know that the Revenue usually will look at a few factors, three main factors, and they will place particular weight on those factors, those factors being: Is there mutuality of obligation? What level of control did the business have over the individual? Also, personal service and whether the individual could provide a substitute. Previously, you'd look at it and say, well, if those three factors were present then, in all likelihood, that person would be an employee for tax purposes but what's happened in the Adrian Chiles case is the tribunal has said, okay, well, yes, those factors may be present but let's take a step back and look at all the facts and circumstances of the case and say, was Adrian Charles in business on his own account and, if he was, then notwithstanding control, mutuality of obligation and personal service, we're going to say that he was not an employee for tax purposes and therefore the IR35 rules didn't apply and that is what has happened here and that is what makes this case so interesting. That's what highlights why these rules are notoriously complex and that also is what makes it even harder for businesses when trying to work out whether individuals engaged through PSCs would be employees for tax purposes.”
Joe Glavina: You say in your Outlaw article that this decision will not be helpful to business trying to apply the rules and manage IR35 tax risks because, essentially, it creates a lot of uncertainty. So, what can employers do about it? What’s the fix?”
Penny Simmons: “That's a great question, what is the fix? Not to be unhelpful, I'm not sure there is an absolute fix at the moment. It will be interesting to see what happens with the Adrian Chiles case and whether the Revenue goes on to appeal it. I think the message to business has to be to take the status determinations that you make under IR35 when engaging individuals through PSCs, to take those determinations seriously and to look at all the facts of the case and not to make sweeping decisions based on one factor alone because, really, what we can see you need to stand back and you need to look at all the circumstances that are going to affect how that individual is engaged by the business and how they provide services to the business. Now that's not a perfect answer, a perfect solution, to business but at the moment I think that's the best we’ve got.”
Joe Glavina: “Given it’s very complex, should employers be getting expert advice to help get it right. So, someone like you would help decide?”
Penny Simmons: “Again, we have to look at practice pragmatic solution as well as minimising risk as far as possible. Now, obviously, I can make those reviews and I can look at the status of terminations for clients but sometimes it will be impractical to get a lawyer, or another advisor, to review everything, every single status determination that's made. What my advice to businesses would be where it's grey is definitely seek advice or take a step back and think about it. Think about it carefully, because it can be grey, and you do need to often think about it very carefully and look at all the facts and circumstances of the case.”
Penny’s article on the Adrian Chiles case which we mentioned earlier is called ‘IR35 win for Adrian Chiles shows complexity of UK rules’ and is available now from the Outlaw website.
- Link to Tax Tribunal judgement: Basic Broadcasting Limited v HMRC