BBC presenter and journalist Christa Ackroyd’s personal service company (CAM Ltd) has lost its appeal to the Upper Tribunal against an HMRC assessment for income tax and national insurance contributions under IR35. As a result, CAM Ltd still owes HMRC £419,151.00 in income tax and national insurance contributions, penalties and interest.
This case throws up some interesting pointers on the importance of ‘control’ in determining whether a relationship between the individual worker and the end user gives rise to deemed employment for tax purposes. It is also a useful reminder that the terms of the ‘hypothetical contract’ between the individual worker and end user, as constructed by the court, can differ from terms of the actual contract(s) between the parties. In this case, a right of ultimate control was implied into the hypothetical contract in favour of the BBC, despite the actual contract(s) being silent on the subject.
Readers may recall that sufficient “control” is one of the criteria for determining whether there is an employment relationship for tax purposes. The other factors being:
- Personal Service – or is there a right of substitution?
- Mutuality of obligation - broadly, an obligation on the part of the worker to provide work or skill and an obligation on the part of the engager to pay the worker for that service.
- Other Factors -the presence of any other factors indicating the relationship is otherwise than one of employment such as provision of their own equipment and taking financial risks.
We know that what amounts to “sufficient control” is flexible; it has to adapt to the practical realities of different industries, skills levels and working practices. Simply asking whether someone determines what, when, where and how an individual provides their services (referred to as “direct control”, akin to supervision) is not generally appropriate for individuals that exert, through their professional skill and experience, a high degree of autonomy in performing their role. Instead, the focus is on whether the deemed employer has ultimate authority over the individual, so that the individual is subject to the employer’s order and directions. CAM Ltd unsuccessfully challenged the First Tier Tribunal’s finding that there was a sufficient degree of control by the BBC over the services provided by Ms Ackroyd.
Control can be difficult to analyse where a highly skilled professional delivers services in an environment that is, by its nature, highly structured. In this case CAM Ltd (the personal service company) had effective control over Ms Ackroyd’s working activities and Ms Ackroyd could control research, production and filming, and how interviews were conducted. It was acknowledged that she had a high degree of autonomy and professional judgment in carrying out her services. However, the overall content and delivery of the Look North programme – the stories to be covered, order of coverage, identity of interviewees, determination of whether and how those stories were to be used, and editorial changes to the programme were ultimately determined by the BBC. The BBC’s editorial guidelines formed an important context, in practice Ms Ackroyd was obliged to follow them. The Upper Tribunal rejected the assertion that control over Ms Ackroyd’s input could be separated from BBC control over the programme output, on the basis that in this case the expectation was that Ms Ackroyd’s input would flow through into programme output, but also because in none of the decided IR35 cases had taken this approach. It remains to be seen whether this argument may be pursued further.
It is easy to see how a similarly difficult factual pattern could arise where a consultant is providing specialist services as part of a much larger “project”, perhaps in the IT, PR or energy sector. The decision invites debate as to the extent to which there is room to argue “insufficient control” in circumstances where the end user maintains some level of overall ultimate control over a project for which the worker services are provided.
This is potentially an important point because businesses in the private sector are going to need to familiarise themselves with the nuances of the “employment for tax purposes” assessment in preparation for the changes to IR35 currently due to come into effect from April 2020. Medium and large private sector organisations will need to determine whether their “off-payroll” workers are deemed employees and they (or the fee payer) will need to deduct and account for income tax and national insurance contributions as applicable. Preparation for the changes (currently in draft form and awaiting detailed guidance from HMRC) are highlighting some complexities that impacted businesses are facing, such as identifying the “end user” where a consultancy business provides a composite service to a client (which utilises workers via PSCs), certain international aspects of the rules and reconciling operational payroll / finance procedures. Businesses are being encouraged to undertake labour supply audits to assess the extent to which they are likely to be impacted by the rule changes.
Having said this, the Chancellor of the Exchequer, Sajid Javid, has announced today that a major review of all aspects of self-employment will take place if the Conservatives remain in power. He has said he wanted, in particular, to look again at the proposed changes to the IR35 rules. This could mean that the new IR35 rules may not come in as expected in April 2020.