After 9-years of trying, HMRC have been told by the courts, yet again, that they were wrong to claim that Kaye Adams of Atholl House Productions Limited was caught by IR35 whilst working on engagements with the BBC.
On November 29, 2023, after four hearings (three of which were upheld in favour of Ms Adams), Judge Tony Beare confirmed – once again – the presenter’s outside IR35 status.
The investigation into Adams’s BBC work began in July 2014 when HMRC claimed her engagements from 2013/14 to 2016/17 should be seen as “deemed employment.”
They dropped the claims for 2013-15. Adams won her appeal in April 2019, but HMRC refused to give up, leading to three more hearings, where none of them led to a decision that she was a “deemed employee.”
So, what does this ruling mean for contractors – and for future IR35 cases?
Dave Chaplin, CEO of IR35 tax advisory firm IR35 Shield, who has been supporting Ms Adams on her case since Jan 2019 and assisted at all four hearings, answers our questions.
HMRC reportedly spent £250,000 chasing a possible £70,000 tax debt. Why have they been so determined to pursue Adams?
What’s clear now is that this case was never really about Ms Adams, but a battle about principles in common case law, which HMRC were trying to shape in their favour – but which spectacularly backfired in the decision released by the Court of Appeal on 22 April 2022.
As for the costs, HMRC’s Litigation and Settlement Strategy (LSS), which are the rules HMRC follows states that:
The objective of securing the best practicable return for the Exchequer requires consideration of not only the tax at stake in the dispute itself but also – in circumstances where a precedent may be set, or where HMRC is seeking to influence customer behaviour – potential tax liabilities of the same or other customers.
In my view, the customer behaviour they have been seeking to influence, is that of the entire flexible market, in particular the media sector, to try and pressurise firms to put self-employed people on payroll, even though they aren’t “deemed employees.”
Do you think HMRC will appeal yet again? Is this even possible?
No, I don’t think they will appeal, because the rules in the LSS won’t allow it.
The principles have already been decided at the Court of Appeal. If HMRC were unhappy with those, they should have appealed to the Supreme Court at that point, which they didn’t.
In my view, it would be surprising if HMRC tried to appeal for a fifth time. The upper-tier (UT) is a cost regime, and the odds of them winning must be less than 50% – is any barrister going to suggest otherwise? The costs for both sides at UT would easily be £100,000 combined, which HMRC would inevitably end up having to pay for – which is more than the tax at stake.
The law is not like a casino, where you can keep gambling with taxpayers’ money, on the mistaken belief that having had four losses in a row, you must be due a win.
We’ll find out for sure in mid January 2024, when the 56 day rule expires. HMRC normally waits until the last day before deciding to lodge an appeal.
What are the implications of this ruling on future IR35 cases?
The fourth ruling is a first-tier tribunal ruling, so does not set a legal precedent. But, it should be read in light of all four hearings, where two of the rulings did set a precedent. Judge Beare has applied the law in the fourth hearing.
In this case, we saw that even when the pre-conditions of personal service, mutuality and even significant control are met, there was no default finding of employment. A multi-factorial determination was correctly conducted, and together with Other Factors, the determination was one of self-employment.
For portfolio workers (people who have multiple concurrent clients), there is no magic rule about the percentage of time for one engagement compared to others.
HMRC’s own Counsel confirmed this at the ruling. Judge Beare referred to the time commitment for the BBC work as significant, but said that there was still a “meaningful amount of time” left to work for other engagers.
There was considerable debate about how to interpret time commitment at the hearing, and we spent a meaningful amount of time forming cogent arguments about it.
HMRC suggested the available working time for Kaye was 8 hours a day for 52 weeks a year, minus time for holidays.
After the tribunal, Kaye and I reflected on HMRC’s supposition concerning her working time, and found the idea that she worked 40 hours a week perplexing. We must have had over a hundred phone calls over the years, and almost every time we speak, she is always on the move, going to the next piece of work. If she’s not sleeping, she’s working. It’s her life, and she enjoys the freedom she has, controlling her own diary, working for whoever she chooses to work for, when she wants to.
Are there any takeaways from this case which could help contractors to ensure their work remains outside IR35?
Where contractors are working for medium and large clients, the status decision will be largely dictated by the engager, and the engager holds the tax risk. Where the engager is a small company, the old rules still apply, and the contractors hold the tax risk.