By Clare Munro, Tax Partner
020 7490 7766
The threat of an IR35 enquiry has been a background concern for contractors since its introduction in 2000, but became an expensive reality for TV presenter Christa Ackroyd last week.
Ms Ackroyd's personal service company had a 7 year contract with the BBC under which she would present, amongst other things, their Look North programme. HMRC argued that she was effectively employed rather than self-employed and the First Tier Tribunal agreed; the IR35 rules should be applied and so Ms Ackroyd's company owed over £400k in PAYE.
Inevitably a TV presenter's situation is rather niche, which limits the parallels with, say the IT industry. Nevertheless, the financial consequences for Ms Ackroyd and her company are huge and it would be wrong to dismiss the decision as irrelevant to ‘normal’ contractors.
Contractors, and those hiring them, have perhaps become complacent as HMRC has not used the IR35 rules in any systematic way. So, this first case in seven years has had press attention as it may be a foretaste of a new and aggressive approach by HMRC. Contractors and hirers should therefore now be looking at their arrangements to assess whether they too are vulnerable.
‘Control’ remains key to a person's employment status. Ms Ackroyd had a lot of autonomy but the BBC retained editorial control and she was required to work within the BBC's Editorial Guidelines. Indeed, it was a breach of the guidelines that resulted in termination of the contract with her company. While there were no set hours, the BBC had 'first call' on Ms Ackroyd for 225 days a year and she was unable to take on other work without BBC consent. To all intents and purposes she had a full time job with them.
The court considered 'mutuality of obligation' – the requirement to perform personally any work offered in return for remuneration - and, given that this was a seven year fixed term agreement, which required the BBC to pay the fees even if they did not use Ms Ackroyd, and she was required to work if asked to do so, found each side to be committed to the other in what the judge described as a ‘highly stable, regular and continuous arrangement’. Clearly this helped them to distinguish from a contract to supply a specific service and move on.
The ability to send a substitute to perform the service is usually recognised as being inconsistent with employment and the contract between Ms Ackroyd’s company and the BBC understandably bound it to send her personally. For the judges, it was the right to provide a substitute under the contract that was relevant, regardless of whether the contractor actually did so.
A take away point from Ms Ackroyd’s misfortune is that all contractors should be looking at their contracts if they want to avoid the same fate. The BBC, having encouraged Ms Ackroyd to use a personal service company without really thinking through the potential consequences, did not emerge from the judgement well either and hirers should see this case as a wake-up call; at the very least they should avoid contracts and working practices which invite IR35 treatment.