The fourth decision by the First-tier tax tribunal, in the long-running case of Atholl House Productions Limited v HMRC, involving broadcaster Kaye Adams, was released by Judge Tony Beare on 29 November 2023, who upheld the appeal. For the third time, Atholl House successfully discharged their burden of proof, demonstrating that HMRC was wrong to claim her engagements with the BBC were caught by the Intermediaries Legislation.
Dave Chaplin, CEO of IR35 Shield, who has supported Ms Adams on her case since Jan 2019, summarises the fourth hearing decision.
The three previous hearings
HMRC's initial enquiry began in July 2014. The Atholl House case concerned a headline tax figure of £124,000, which was likely to have been reduced to around £70,000 once taxes already paid by Atholl House and Ms Adams were considered.
Ms Adams applied to the tribunal in March 2018 and won her first hearing in April 2019. HMRC claimed the tribunal had made errors in law and was granted permission to appeal to the Upper-tier tax tribunal. Mistakes were found, but the remade decision released in February 2021 was the same.
HMRC claimed further errors in law were made again and was granted permission for the Court of Appeal for a third hearing. The Court of Appeal's decision in April 2022 agreed errors were made and remitted the case, stating new evidence may be abduced, thereby setting up a fourth hearing at the first-tier tribunal.
Ms Adams was represented by barristers Keith Gordon and Ximena Montes Manzano from Temple Tax Chambers at both the Court of Appeal and the subsequent fourth hearing.
Ready Mixed Concrete – Stages 1 and 2
Reading the fourth decision in conjunction with the other three hearings in the case is recommended to digest the reasoning fully. There was considerable debate about the scope of the fourth hearing, which Judge Beare concluded was "theoretical" since the tribunal "[found] that the terms of the hypothetical contracts at Stage 2 were exactly the same as those found by the Upper Tribunal."
The hearing focused on the correct application of Stage 3 of the Ready Mixed Concrete framework, described by MacKenna J in Ready Mixed Contract (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 ("RMC"), which says that:
"A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service."
Judge Beare summarised the position by saying that for there to be a relationship of employer and employee, there must be mutuality of obligations ("Stage 3A"), the putative employer must enjoy a degree of control over the putative employee ("Stage 3B"), and the other terms of the contract must be consistent with its being an employment contract ("Stage 3C").
After considerable analysis, the tribunal agreed not to disturb previous findings on the conditions being met in Stages 3A and 3B. Notably, whilst there was a valid substitution clause in the contract, the tribunal concluded that the "dominant feature" of the contracts, in this case, was one of personal performance on the part of Ms Adams, leaving the tribunal's primary focus on Stage 3C, as they explained:
"[131] We now turn to the critical part of this decision, which is whether, taking into account the terms of the hypothetical contracts which we have found at Stage 2 and the wider circumstances in which the hypothetical contracts arose, the hypothetical contracts should be seen as contracts of service or contracts for services. Putting it another way, should Ms Adams be seen as having entered into the hypothetical contracts as an employee of the BBC or as a person acting in the course of a business on her own account."
Ready Mixed Concrete – Stage 3
By not disturbing Stages 3A and 3B, the tribunal aligned with the submission made by Adam Tolley KC, counsel for HMRC, on Day 1 of the hearing: "Well I would say, judge, if you construe the Court of Appeal's order properly, in light of the context in which it was made – namely the reasoning in the judgement, and the issue which the Court of Appeal had to resolve – then it is apparent that the only live issue for determination now, is stage 3C."
The tribunal then directed itself on the law to ensure it took into account "not only the express or implied terms of the relevant contract but also a broader range of factors" and set out the principles to be followed, confirming again that when it comes to Stage 3C, "there is no presumption either in favour of the conclusion of employment or against the conclusion of employment."
Regarding the circumstances to be considered, the tribunal noted from the Court of Appeal decision that the contract "should not be construed in a vacuum, but in the light of the admissible factual matrix" and that "the admissible factual matrix includes factual circumstances which were known by, or reasonably available to, both parties at the time when the contract was executed."
After reviewing and analysing the terms, the tribunal said that "the terms of the hypothetical contracts as a whole tend to indicate that the relationship between the BBC and Ms Adams under the hypothetical contracts would have been one of employment". Then, it reviewed the circumstances in which the hypothetical contracts would have arisen. These included the length of the relationship, which pointed to employment. However, other circumstances pointed away from employment, which included the absence of control over other engagements, the absence of compelling editorial training and medicals, time commitment in previous tax years, industry customs and practices, course of business dealings, and equipment. Other factors were found to be status neutral, which included "part and parcel", "a photo of Ms Adams at the BBC building", and "financial risk."
Time commitment – significant, but meaningful amount left for work elsewhere
Concerning the time commitment, whilst the tribunal considered the degree of commitment pointed towards employment, there was still a meaningful amount of working time available for her other engagements. The comment aligned with HMRC's counsel during the hearing when Tolley KC stated: "As I say, I do not want you to get the wrong impression and that there is any magic in percentages in terms of income or time. There is no hard and fast rule about where the line ought to be drawn."
Judge says “Finely-balanced” but self-employment factors outweighed factors for employment
After weighing all the factors, the tribunal said the position was "finely balanced". It stated that they believed the factors pointing towards employment were outweighed by the factors that pointed in the direction of a self-employment relationship.
The tribunal also reflected that the BBC did not treat Ms Adams as an employee in any way, which was also known or reasonably available to each of the relevant individuals. Finally, they concluded that the terms of the hypothetical contracts and the circumstances in which the hypothetical contracts arose pointed toward a conclusion of self-employment.
HMRC has 56 days to decide whether to seek further permission to appeal.
What can the media sector learn from the entire Atholl House case?
After analysing all four decisions in the Atholl House case in detail, in particular the fourth decision, there are key takeaways:
- The absence of payment and any control will fail to meet the necessary pre-conditions to a finding of deemed employment. However, the presence of payment and some control says nothing about the status, which can only be determined by considering all the factors as part of a multi-factorial determination.
- Even when the pre-condition tests of mutuality and sufficient control are met, even if the rights of control are considered significant, if the rest of the contract and surrounding circumstances in which the engagement was entered are inconsistent with a contract of employment, then the engagement will not be "Inside IR35" (e.g. caught by the legislation).
- Whilst the length of any engagement is a factor, it is not determinative, particularly where the worker still has a meaningful amount of time available to work for other clients. There is no hard and fast rule on percentages of work or where the line ought to be drawn.
- The historical career history of an individual as a freelancer is a highly relevant factor, and determinations should not narrowly focus only on concurrent work alongside the engagement being considered.
- The fact that the worker performs similar services for others as an independent contractor is a factor which points toward self-employment. It is not the specific activities that matter but the capacity in which they are entered.
- It is wrong to automatically conclude that the status must be the same for one engagement simply because similar services are performed elsewhere – the terms of the engagement are central to determining the status. (Note: Ms Adams performed similar services, which included presenting on radio, TV and other engagements. All her engagements were included in the mix.)
- Whether the worker waives intellectual property rights sheds no meaningful light on the status question.
- A worker can retain self-employment status over many years if the other features of the relationship point away from employment.
- It is a relevant factor that the hirer and worker are both aware that the hirer does not treat the freelancer as an employee in any way.
Kaye Adams statement:
Broadcaster Kaye Adams said: "I am grateful to Dave Chaplin of IR35 Shield for all his expert help and guidance since Jan 2019, without whom I would have cracked. Dave's knowledge on all IR35 matters is exceptional, and I would strongly recommend him to anyone with IR35 concerns."
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