Under the anti-avoidance tax legislation known as IR35, where an individual offers services through a personal service company (PSC), but in practice operates more like an employee than a self-employed person, Her Majesty’s Revenue and Customs (HMRC) can treat them as an employee for tax purposes.
A number of media presenters working through PSCs have recently successfully challenged HMRC’s decision to tax them as employees. In the latest case, Atholl House Productions Ltd v HMRC, the First-tier Tribunal (FTT) ruled that a radio presenter who had provided services to the BBC through her PSC was not an employee for tax purposes.
Kaye Adams provides services to the BBC and other media organisations, including Sky and ITV, through her PSC, Atholl House Productions Ltd. During the tax years 2015 to 2017, she presented a BBC Radio Scotland programme governed by written agreements between the BBC and Atholl House. HMRC determined that for these tax years, her arrangements with the BBC fell within IR35 and that Atholl House was therefore liable to pay employee’s income tax and NI contributions. The company appealed HMRC’s decision to the FTT. Having considered the written agreements and all other relevant circumstances, the FTT overturned HMRC’s determination, ruling that this was a contract for services and not an employment relationship.
The Tribunal acknowledged that there were factors pointing towards employment. For example, there was some mutuality of obligation between the BBC and Ms Adams, in that she would be paid a fee if the BBC failed to offer her a minimum amount of work. HMRC had also attached great weight to provisions in the written agreements which gave the BBC editorial control and extensive control over Ms Adams’ time and other engagements.
However, the FTT emphasised the importance of looking at the overall picture. Many of the contractual provisions did not apply in practice. For example, although there was a contractual right of substitution, in reality it would have been impractical. Key factors pointing away from employment status included the BBC’s lack of control in practice over Ms Adams’ other engagements; her lack of access to BBC equipment and systems; the lack of holiday pay, sick pay and pension contributions; and the fact that the BBC’s formal reviews and processes did not apply to her. Ms Adams also wrote her own scripts and controlled the content of her show whilst on air. The FTT also found it significant that Ms Adams has worked as a freelance journalist for over 20 years with various media organisations, sometimes concurrently with her engagement with the BBC. The Tribunal concluded that there was no employment relationship. Ms Adams was carrying on her profession on a self-employed basis.
Organisations receiving services from individuals via intermediaries such as PSCs need to be aware of the factors which are relevant in determining whether that individual should be treated as an employee for tax purposes. In the public sector, the responsibility for making this determination now lies with the end hirer rather than the PSC or the individual concerned. In the private sector, the PSC is currently responsible for determining the individual’s employment status. However, this will change in April 2020 when new regulations will shift the responsibility to the end hirer. This case illustrates that employment status should be assessed on the realities of the working relationship, not just the express contractual terms.
