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​CAM Ltd. vs HMRC 2017

CAM Ltd. vs HMRC 2017
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IR35 Case Studies

 

Christa Ackroyd Media (CAM) Ltd. vs HMRC

The first Tribunal case in seven years and at the height of HMRC's reform to IR35, the case of CAM Ltd vs HMRC has been heavily reported in the media. The case of former BBC presenter, Christa Ackroyd, is the first of a number of BBC presenter appeals to complete, of which HMRC won, resulting in Ackroyd being issued an IR35 liability in excess of £400k.

The case arguably has wider implications for the contractor community, as it solidifies HMRC's position for further IR35 reform in the private sector.

The Appeal

 

TV journalist, Christa Ackroyd, is well known for co-presenting news and current affairs programme, Calendar, alongside Richard Whitely during 1990-2001. In a bid to compete with ITV’s Calendar and improve current ratings, BBC Yorkshire offered Ms Ackroyd a contract in 2001 to present the BBC’s equivalent programme, Look North.

The IR35 enquiry into Christa Ackroyd Media (CAM) Ltd. regarding its engagements with the BBC began in 2011 and resulted in a Tribunal Hearing, which was heard in September 2017. CAM Ltd. appealed HMRC’s decision that the company was caught by the IR35 legislation, more specifically that Ms Ackroyd was a disguised employee.

The determinations issued for tax purposes (under Reg. 80) relate to the tax years inclusive of 2008-9 to 2012-13, and the decisions made for National Income Contributions (NIC) (under S. 8) cover the tax years inclusive of 2006-7 to 2012-13, totalling a liability of £419,151.

Various expenses claimed by CAM Media were also under appeal including a Sky TV subscription and “additional expenditure” relating to time spent working from home by Ms Ackroyd. The liability relating to these expenses totals £14,469.

Additionally, penalties were issued by HMRC concerning non-compliance with IR35. These were not under appeal.

Ms Ackroyd disagreed with the total liability, contending that it did not consider tax already paid by CAM Ltd. Whilst it is known that the total liability for tax and NIC purposes in relation to CAM Ltd.’s engagement with the BBC is in excess of £400k, the actual amount that CAM Ltd. will have to repay is unknown and may have to be addressed at a future Tribunal hearing.

When the enquiry was opened in 2011, its exact nature was not clear. The enquiry was described in the opening IR35 enquiry letter as a ‘Check of Employer and Contractor Records’. Based on this, Ms Ackroyd chose not to attend the initial meeting between her accountant and HMRC that was held in September 2011. Ms Ackroyd later attempted to arrange a meeting with the inspectors when she understood the true nature of the enquiry but was told it was too late to do so.

​Evidence

 

CAM Ltd. called upon two witnesses to provide evidence on its behalf. Ms Kathryn Apanowicz, a radio presenter on BBC Radio York, and Mr Stead, the Managing Director of Daisybeck Productions, whom CAM Ltd. had undertaken work for during her contract with the BBC. There is little within the notes of the evidence given by Mr Stead however the evidence provided by Ms Apanowicz supported Ms Ackroyd’s position.

Ms Ackroyd gave evidence and it was noted by the Tribunal that;

“Ms Ackroyd’s evidence did, we think, reflect the fact that she is more used to interviewing than being interviewed. She was keen to highlight those features which she considered would help her case, occasionally at the expense of directly answering the questions being asked.”

There were some inconsistencies in the evidence given by Ms Ackroyd during the enquiry and the verbal evidence provided at the Tribunal. The Judge appeared to take a dim view of Ms Ackroyd’s request for a meeting being declined by HMRC before issuing their decision and determination;

“We have to say, it would have helped to clarify the position if HMRC had interviewed Ms Ackroyd in the early stages of their enquiry or on any occasion prior to reaching their initial status opinion on 14th September 2012… Ms Ackroyd had been keen to attend a meeting with HMRC before they reached any sort of conclusion, yet the investigating officer did not consider this necessary.”

​Right of Substitution/Personal Service

 

Clause 18 of the contract between Ms Ackroyd and the BBC indicated that Ms Ackroyd could not provide a substitute. It was accepted however that in the context of a TV presenter, this factor was a non-issue as it was evident that the right to provide a substitute would not exist whether employed or self-employed.

​Control

 

It is clear from the notes of the Tribunal that at the time of the contract being offered to Ms Ackroyd by the BBC, her understanding was that she would be given free reign “and could make whatever changes she wanted to the programme.

Ms Ackroyd’s evidence indicated that forming her own personal service company was a suggestion made by the BBC and such evidence was accepted by the Tribunal.

“… it was the BBC who suggested that Ms Ackroyd should work via a personal service company. The BBC did not want her to be an employee therefore we infer that they did not want any potential liability for PAYE and national insurance should she be classified as an employee.”

Ms Ackroyd did not accept that the BBC had any level control over her work and stated that she had “day to day control”. This was not accepted by the Tribunal who specified that this contradicted Clause 5 of the contract.

It is widely understood that decisions concerning employment status rest more heavily on working practices rather than the contractual terms. This does, however, demonstrate that the written contract still holds weight in an investigation. Unfortunately for Ms Ackroyd, there was also further evidence to suggest that the BBC not only exercised control over the work but that they had right of control.

The Tribunal accepted that due to Ms Ackroyd’s expertise she did have a “high degree of autonomy” yet stated that,

“… the context suggests to us that the BBC’s assigned editor has control over the content, given the BBC’s editorial responsibility.”

The Tribunal went on to say that although there was room for Ms Ackroyd to express her views, and at times disagree, the BBC would have the final say.

Ms Ackroyd admitted in her evidence that, “she could be told who she was interviewing,” and in the accountant’s response to HMRC’s initial enquiry letter he stated that, “the BBC are the ultimate arbiter.”

​Mutuality of Obligations (MOO)

 

Interestingly in this case the existence of mutuality of obligations (MOO) was cited as a pointer towards employment, which HMRC’s Check Employment Status for Tax (CEST) tool that is often used to determine employment status in the public sector, omits completely.

CAM Ltd. had a seven-year fixed contract with the BBC, which could only be terminated for breach of contract. The Tribunal stated that;

“The existence of a seven-year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a highly stable, regular and continuous arrangement. It comprehended a high degree of continuity rather than a succession of short term engagements, which points towards an employment contract.”

The Tribunal argued the point that it was not possible for CAM Ltd. to take a financial risk due to the length of the contract and the “high degree of continuity”.

A fairly significant issue, and yet MOO is excluded from HMRC’s CEST tool which has been used frequently since IR35 reform was introduced into the public sector in April 2017. HMRC have been criticised for failing to include MOO within their tool and during the latest IR35 Forum responded by stating that MOO is assumed to exist where a contractor or client is required to use the tool.

HMRC’s understanding of MOO is rudimentary, limited to “an offer and acceptance of work”, yet the test for MOO has been given some significance in this Tribunal. In light of this, HMRC may need to rethink their stance on mutuality of obligations.

​Work for Other Clients

 

Ms Ackroyd undertook work for several other clients during her contract with the BBC;

Prior to accepting the contract with the BBC, Ms Ackroyd held a position as a columnist for the Daily Mail and was eventually persuaded to end this work by the BBC. Other work was obtained via an agency including an appearance in TV drama, A Touch of Frost and in the film, Calendar Girls. Additionally, Ms Ackroyd worked on a project with Daisybeck Productions.

Whilst the contract with the BBC stated that Ms Ackroyd had to seek ‘consent’ before accepting work for other clients, Ms Ackroyd stated that she advised the BBC out of professional courtesy only.

Although the majority of CAM Ltd.’s work came from the BBC during this time it was clear that Ms Ackroyd was actively seeking other opportunities, obviously feeling that she had the freedom to do so. The BBC did not appear to object to this until 2013. 

It is a common misconception among contractors that undertaking concurrent work with several clients is sufficient to be deemed as outside of IR35. This is not the case, particularly where the main source of income is derived from one client.

​Case Law

 

In this case, the key test was control. Control was the more prevalent factor as there appeared to be no right of substitution, and the very nature of the contract required Ms Ackroyd specifically to undertake the work.

The general approach adopted by the Tribunal was to look at the conditions necessary for an employment contract to exist as set out by the case of Ready Mixed Concrete (South East) Ltd. v Minister of Pensions and National Insurance (1968). Three conditions were derived for a contract of employment to exist; mutuality of obligation (MOO), control in a sufficient degree, and that no other provisions of the contract are inconsistent with it being a contract of employment.

The Tribunal was satisfied that there was evidence of MOO based on the BBC being contractually bound to pay CAM Ltd. for a set number of hours per year whether they were worked or not, as was set out in the case of Usetech v Young (2004).

The right of control was recognised as being particularly relevant in this case as CAM Ltd. evidently did have some control over its work.

“The key question in this regard is not whether, in practice, the worker has actual day-to-day control over his work but whether there is, to a sufficient degree, a contractual right of control.” -  White v Troutbeck (2013) and Morren v Swindon and Pendlebury BC (1965).

The Tribunal maintained, and as indicated in the above cases, that “absence of control as to the detailed way in which work is performed is not inconsistent with a contract of employment”.

The Montgomery v Johnson Underwood (2001) case, where an agency worker attempted to establish that she was in fact an employee, was quoted. This case considered the position of employees with a high degree of autonomy.

Autoclenz v Belcher (2011) emphasises the right of control; “If the genuine contractual right of control, to a sufficient degree does exist, it does not matter whether that right is exercised.”

Acting for CAM Ltd., Mr Summers of Grant Thornton UK LLP put forward a Court of Appeal decision in Cowell v Quilter Goodison & Co Limited (1989), which involved an equity partner in a firm of stockbrokers. As an equity partner it was held that “he was not the servant of anyone”, and Mr Summers maintained that this was the case with Ms Ackroyd. The Tribunal dismissed this claim asserting that, “the question of whether an individual ‘looks like a servant’ is not a helpful test”.

Fascinatingly, the Tribunal raised that IR35 should not be determined using a ‘mechanistic’ or ‘check list’ approach, completely contradicting HMRC’s CEST tool.

Summary

 

CAM Ltd.’s appeal was dismissed by the Tribunal. Whereas it was agreed that the contract that Ms Ackroyd held with the BBC reflected aspects of a hypothetical contract, in others, particularly control, it was found that CAM Ltd. was subject to direction by the BBC.

Ms Ackroyd put forward to the Tribunal that the BBC were obliged to accept and act upon any suggestions she made but the Tribunal did not accept the evidence.

“It seems unlikely to us that the BBC would give Ms Ackroyd entirely free reign of Look North without at least an expectation that in carrying out her work should abide by the Editorial Guidelines.”

Some interesting issues were raised during the Tribunal case, which saw Ms Ackroyd pay the price. It is in our opinion that both HMRC and the BBC did not particularly treat Ms Ackroyd fairly.

The nature of the enquiry was not clear in HMRC’s opening letter. HMRC have been criticised for this resulting in enquiry letters being amended to clarify the nature of the enquiry. Ms Ackroyd did not realise the full nature of the enquiry immediately, and once this had become apparent she attempted to arrange a meeting with HMRC, which they declined.

The Tribunal highlights some disparity regarding mutuality of obligation (MOO). Holding a degree of significance, it was cited as a pointer towards employment regardless of the CEST tool omitting testing for MOO.

Ms Ackroyd became defensive when being questioned by HMRC, which was proposed by the Tribunal notes to be, in part, a reaction to her treatment by the BBC. At the time of HMRC writing to the BBC about the tax affairs of CAM Ltd., the BBC went on to terminate the contract shortly afterwards, citing a breach of contract. This included CAM Ltd. having worked for other clients without obtaining the permission of the BBC – something they had not been concerned about previously.

It was the BBC who sought that Ms Ackroyd set up her own limited company and when questioned by HMRC regarding Ms Ackroyd’s employment status, the BBC terminated her contract despite her success in improving the ratings of Look North to surpass that of its ITV rival, Calendar. Contrasting to Ms Ackroyd’s case, an employment contract was offered to Look North’s co-presenter, Harry Gration, who initially worked on a freelance basis.

Such treatment hardly seems fair or just for a person who had delivered exactly what was required of them, and yet the BBC, who wished to avoid any employment obligations concerning Ms Ackroyd, came away completely unscathed.

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The Company

 

About us

Why Qdos?

 

Qdos Contractor are a leading authority on the IR35 legislation, having handled well over 1,500 IR35 enquiries on behalf of UK contractors since its introduction in 2000. Qdos have been at the forefront of the public sector changes, developing a compliance management process which has enabled over 30 agencies/end clients to minimise disruption, and thousands of contractors to receive an independent and fair assessment of their status. In addition, Qdos are one of the leading providers of specialist contractor services in the UK.

 

Our History

 

Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

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