How this case highlights the complexities of IR35 and offers key learnings for contractors and businesses
TV presenter, Kaye Adams, has had her appeal against HMRC’s IR35 case upheld – a result which brings an end to a nine-year ordeal, for now at least.
The decision was reached last week, on Thursday 29 November, after a First-Tier Tax Tribunal hearing overseen by Judge Tony Beare and Mr Duncan McBride.
It’s a positive outcome after an almost decade-long pursuit. During that time, Ms Adams has been dragged through all levels of the tribunal system, with HMRC pursuing the presenter for around £124,000 in tax liability.
While the tribunal has once again found in Ms Adams’ favour, the tax authority has the opportunity to appeal. It must do so no later than 56 days from the date of the ruling’s issue. But given how aggressively HMRC has pursued Ms Adams, there’s always a chance this case may be heard yet again.
This case became increasingly complex throughout its repeated hearings – but it offers some key lessons. Here, we explain the case history, and what it means for contractors and the businesses engaging them.
The key details
Kaye Adams has worked as a freelance journalist for some of the UK’s leading news organisations, including the BBC, ITV and Sky, providing her services through her limited company, Atholl House Productions Ltd.
In 2014, HMRC began investigating Ms Adams’s tax affairs; specifically, contracts held with the BBC. In 2018, HMRC took the view that the presenter had operated as an employee of the BBC between 2013/14 and 2016/17.
Contractors were responsible for IR35 determinations and liable for taxes for engagements completed before the off-payroll working rules were rolled out in the public and private sectors (2017 and 2021 respectively). As such, HMRC began to pursue Ms Adams for the reported £124,000 liability allegedly accrued over these contracts.
Ms Adams, however, contested this. Here’s how this long and complex case played out:
- She appealed at a First-Tier Tax Tribunal in 2019 and succeeded.
- HMRC appealed against the ruling, arguing that the judges had made “errors of law” when reaching their judgements.
- The case was escalated to an Upper-Tier Tax Tribunal, held in 2020. Again, the judge found in Ms Adams’s favour; but HMRC appealed again.
- The case was next heard at the Court of Appeal in 2022. At this stage, the Court ruled in HMRC’s favour.
This meant the Court agreed with HMRC’s arguments that judges in the First-Tier and Upper-Tier Tribunals “had made errors of law” when upholding Ms Adams’s appeals.
The Court “set aside” these earlier judgements, referring the case back to the First-Tier Tribunal, to be heard over the 10, 11 and 12 October this year.
What swung the case?
This was ultimately decided on key elements of case law, derived from Ready Mixed Concrete
– a 1968 case which set the legal foundations of the three key employment tests: Right of Substitution, Control, and Mutuality of Obligations.
HMRC’s view was that the tribunal judges had misinterpreted these elements. As a result, the tax authority argued, the judgements reached at the previous tribunals were wrong.
In the latest tribunal hearing, then, Judge Beare and Mr McBride revisited how the previous tribunals reached decisions relating to these areas. The Court of Appeal had specified that Control and Mutuality of Obligation were settled matters, and not to be re-examined.
Instead, what Judge Beare and Mr McBride were looking at was whether other contractual terms between Ms Adams and the BBC could point towards employment. This was across the actual contracts held and in the “hypothetical contracts” between the parties; the case notes provide some context and extensive commentary on why this is important.
Ms Adams’s contracts with the BBC contained a clause on substitution, and her other clients “accounted for a significant proportion of her gross income”. This meant she spent “a meaningful percentage” of time working for other organisations – not something a typical employee does.
In combination, these factors led the tribunal to conclude that, on balance, “the terms of the hypothetical contracts and the circumstances in which the hypothetical contracts arose point towards a conclusion of self-employment”.
What are the key takeaways?
There are plenty of lessons in this saga.
Firstly, IR35 is deeply complex; so much so that HMRC struggles to differentiate between compliance and non-compliance. As such, the tax office couldn’t interpret its own rules – even after four attempts.
Secondly, these investigations can be costly, drawn-out affairs. Nine years is at the extreme end of the spectrum, but it proves HMRC’s determination to make an example of contractors where it suspects non-compliance.
But the most important takeaway is that contractors can indeed be compliantly engaged outside IR35.
Of course, given the lengths the tax authority will go to as it tries to prove otherwise, it’s advisable to ensure your engagements are bulletproof.
That means using tried and tested means to demonstrate IR35 compliance. Holding appropriate insurance
will also offer crucial protection from the legal costs and tax liability incurred as a result of a tax enquiry.