Our pals at the Revenue have defeated a BBC presenter in the first IR35 ruling since 2011, handing them their first success since 2009. This high profile case involved a BBC news presenter, Christa Ackroyd who operated through a personal service company, Christa Ackroyd Media Ltd (CAM Ltd).
While the First Tier Tribunal (FTT) has confirmed that this ruling will not be a test/lead case, is it does serve as a stark reminder that IR35, for all its flaws, can be effective if HMRC choose to enforce it.
Ackroyd presented the BBC’s Look North show via CAM Ltd. The contract with the BBC was for seven years and Ackroyd was required to provide her services up to 225 days per year.
As a result of a status investigation, HMRC issued assessments totalling £419,000 in back taxes on the basis that the engagement was under a contract OF service rather than a contract FOR services and therefore she should be treated as an employee of the BBC.
In the ruling the judge said “In our view a hypothetical contract of that length for at least 225 days per year and terminable only for a material breach points toward a contract of employment.” The obvious point being that a stable, regular and continuous arrangement is not an arrangement of self-employment which is generally characterised by a “succession of short term engagements.”
In addition, the FTT found that the BBC had significant control over Ackroyd both as “ultimate arbiter” and during day-to-day operations.
There were therefore a number of indicators of employment:
- The length of the contract
- The fact that the BBC were required to pay CAM Ltd even if Ackroyd’s services were not required
- Through the editorial team, the BBC would have ultimate control over the output
- No substitution was allowed
- Ackroyd was restricted from providing services to other organisations without BBC consent
- Ackroyd was contractually obliged to perform the services, and the BBC was contractually obliged to pay fees to CAM Ltd each month
It can be seen from this list that there are problems with Mutuality of Obligation, Right of Substitution and Direction and Control. Those with IR35 knowledge will know that that those three factors are nothing new, and therefore provides no new legal points, so in that regard this case is not significant. However, it does bring the matter to our attention once more. It serves as a reminder that IR35 isn’t going away and contractors would do well to learn some lessons from the ruling.
What lessons can be learned?
Always carry out due diligence before and during an engagement
Your employment status is not a matter of choice, it’s a matter of facts. You should always have your contract reviewed by a professional. It’s not good enough to rely on your agency or yuor client saying it’s OK. In this case, the BBC insisted on a limited company engagement and assured Ackroyd it was in order. Ackroyd’s accountant confirmed this. These facts made no difference to the ruling. Get an IR35 expert to review your contract and working practices at the start and review these periodically.
Avoid minimum hours or days in a contract
Minimum hours or days implies Mutuality of Obligation (MOO). This an employment pointer and should be avoided.
Be careful of long-term contracts
A series of sequential contracts with the same client may be fine, but avoid a fixed term contract stretching over a number of years. This, again, implies MOO.
Be wary of control via documents and procedures
While it was not explicit in the contract, it was implied and generally accepted that Ackroyd was required to comply with the BBC’s Editorial Guidelines. This was a key factor in the Court’s decision to deem her subject to Direction and Control.
Be realistic on terms
This case was really an open-and-shut case. The engagement failed as self-employment on virtually every count. A contractor should recognise that while it’s easy to take the low tax path, in the long-term it may be better to accept that a contract is not one for an independent contractor and either take it on under an employed arrangement or walk away altogether.
And finally, as a side lesson:
Don’t put an investment property in your company
While researching for this piece, I looked at the accounts filed by CAM Ltd at Companies House. These showed that there is investment property in the company. IR35 tax is a corporate liability, not a personal one, and therefore any assets in the company are at risk if the company cannot meet its obligations. Ultimately, HMRC can order the winding up of the company, and the sale of its assets to recover the tax due, or as much of it as possible. I have long advocated for ring-fencing assets to protect them against liquidation actions and this case is a good example of why.
In summary, then, this case isn’t really legally significant as it really was an open goal for HMRC. But it’s significance can be seen on other ways: It raises the awareness of the issue again, it gives HMRC confidence, and will provide them with more ammunition to drive through the proposed reforms. Make no mistake, HMRC are coming and we need to prepare.