Tax tribunal finds for TV presenter Kaye Adams in IR35 appeal against HMRC

The TV and radio presenter Kaye Adams has won the latest stage of her long-running IR35 dispute with HMRC. The case serves as a useful reminder to end users of the key factors that determine whether a relationship is inside or outside the minefield which is the IR35 off-payroll working legislation. We’ll speak to a tax specialist about the ruling and what end users can take from it.  

A reminder. The IR35 rules ensure that off-payroll and on-payroll workers are taxed fairly and are designed to stop contractors working as ‘disguised employees’, by taxing them at a rate similar to employment. So, IR35 applies if the worker who provides services to a client through their own intermediary, typically a personal service company, would have been an employee if they were providing their services directly to that client. The party responsible for applying the rules must determine whether the worker is employed for tax purposes. A worker’s employment status for tax purposes determines the employment taxes the worker, and the deemed employer, need to pay depending on whether a worker is deemed to be an employee or self-employed. 

As Business Matters reports, this is long running litigation stretching back over 9 years. The headline figure is a tax liability of £124,000, which would have likely been reduced to around £70,000 once taxes already paid by Atholl House and Ms Adams were taken into consideration. In a finely balanced judgment the tribunal ultimately found in favour of Ms Adams, concluding that the factors pointing towards employment were outweighed by the factors pointing in the direction of a self-employment relationship and reflected that the BBC did not treat Ms Adams as an employee in any way. Highly relevant was the fact Ms Adams was also engaged by many other organisations over many years, including ITV, and that she’d spent a meaningful percentage of her working time on those other engagements. The tribunal said that while a long relationship can in certain cases be indicative of employment, it was perfectly possible for a worker to retain the status of self-employment over many years if the other features of the relationship pointed in that direction.

So, let’s get a view on this case. Tax specialist Chris Thomas has been following the litigation and earlier he joined me by phone to discuss it. First, the background: 

Chris Thomas: “Some of you listeners may recall that this went to the Court of Appeal last year and what it was concerned with really was how should you approach making status determinations for IR35 purposes. Now, as we all know, that is quite a complicated and difficult area and can be quite a subjective judgment to need to make and this case that went to the Court of Appeal last year, which was Kaye Adams’ case, set out a couple of significant points of principle which, perhaps, slightly changed people's understanding of how this should be approached. One of the points arising from that was that you can't just disregard provisions of contracts that aren't consistent with the actual practices of the parties. Now, you might be able to do that for employment law purposes, as per the Autoclenz case, but this decision said you actually shouldn't be doing that for tax purposes, albeit it is relevant, obviously, to consider how those terms are applied or not in practice. The other thing it said, and this is the one that's perhaps the most important here in this sort of re-made decision for Kaye Adams, was that when you're looking at whether there is a deemed employment, yes, you need to look at what the terms of this hypothetical contract would have been were the personal service company not there – so just between the individual and the end user – but importantly, you also need to look at the wider circumstances around that engagement. So, not just focusing on things like control and mutuality of obligation and those kinds of things, but actually also the wider context of that particular individual and their activity. So, what they are doing for other clients, the extent to which they could be said to be genuinely in business on their own account, and I think it had been previously been thought in many quarters that that, perhaps, wasn't as important a factor – and certainly HMRC hadn't perhaps put that weight on it – and what that case said was, well, actually, no, this is important and you do need to take that into account in your decision making.”

Joe Glavina: “In its judgment, Chris, the tribunal said they found this case very difficult and it was a finely balanced decision and, indeed, HMRC might yet appeal it. So, it just shows how tricky this legislation is and what a difficult job end users have in making status determinations accurately. Thoughts on that.”

Chris Thomas: “Yes. This case has now been sent back to the original tribunal to remake their decision taking into account the guidance from the Court of Appeal, and essentially what the tribunal has decided is that even though some key factors have pointed towards a deemed employment – so for example the BBC had quite extensive control over Kaye Adams, it had an obligation to pay a minimum fee, it was fairly clear that there was a requirement for her to provide her own personal service, it needed to be her – notwithstanding all of that, actually, they still came to the decision that, on balance, she was self-employed. The reason they've reached that view is because of these wider factors. They looked at her personal brand, the other engagements that she got with other clients which were actually quite significant in terms of both time and income, and the fact that she was genuinely self-employed in those other engagements. I think that's important because what it tells us is, you can't be too rigid in the way that you look at these determinations and, unfortunately, although it's helpful in that it makes it perhaps more likely that an engagement can be outside IR35, on the other hand it’s not helpful because, of course, for our listeners here, when you're looking at making these determinations, you won't necessarily have a full visibility around some of these wider issues around what they're doing for other people etcetera. So, in some ways it makes the job a bit harder in making the determinations, but I think what this case stresses is you do need to do some digging and you do need to ask those questions of the individual, and you do need to find out those particular things that might be relevant to them personally rather than, perhaps, being tempted just to make a blanket determination for that role just based on what you're asking them to do.”

Joe Glavina: “Given how difficult it can be to make status determinations and the price you pay, potentially, if you get it wrong, is there some way that a client, an end-user, can run it past the Revenue first to see if they’ve got it right?”

Chris Thomas: “That’s a good question. There is no facility to ask HMRC to confirm the answer, unfortunately. It would be nice if there was but there isn’t. The onus is very much put on the end user to make that determination itself. Now, obviously, yes, you can run it through CEST. CEST, as we all know, has its imperfections but it does, provided you honestly answer the questions and take care in doing so, it's the best you're going to get in terms of being binding on HMRC. But the other thing I would say is it is probably worth taking legal advice in those more finely balanced cases because there will be some where, quite frankly, you can look at it and it's fairly obvious what the position is going to be but in these cases where, perhaps, some of the factors do point in a particular direction, but then when you step back and look at it you think, perhaps, yes, but this doesn't quite feel right maybe. Certainly in those cases, I think it is worth getting a second opinion, getting some assistance with that because, as I said, you can't just ask HMRC, and HMRC isn't going to help you with that, but it is important to get it right, obviously, because if you don't either you're going to have a rather disgruntled employee, perhaps unnecessarily so, or potentially, get the answer wrong and have liability to HMRC.” 

That case is a decision of the First Tier Tax Tribunal and we have included a link to the judgement in the transcript of this programme for you.

LINKS
- Link to judgment: Atholl House Productions Ltd v HMRC