HMRC wins IR35 appeal at Upper Tribunal

HMRC has won a significant Upper Tribunal appeal over the use of personal services companies (PSCs) by broadcasters, with the overturning of a previous ruling on the tax status of radio presenter and comedy writer Paul Hawksbee under IR35 regulations 

The case concerned the agreements between Kickabout Productions Ltd (KPL), which is Hawksbee’s PSC, and the radio station Talksport for the tax years 2012-13 to 2014-15. [The Commissioners for Her Majesty’s Revenue and Customs and Kickabout Productions Ltd, [2020] UKUT 0216].

KPL entered into contracts with Talksport under which KPL agreed to provide the services of Hawksbee as a presenter on a three-hour radio programme broadcast every weekday from 1pm to 4pm.

These arrangements did not result in Hawksbee actually becoming an employee of Talksport, but HMRC formed the view that IR35 applied so as to treat him as an employee for tax purposes, and made an assessment for around £140,000 in income tax and National Insurance contributions.

KPL challenged this at a First Tier Tribunal (FTT), which found in its favour, by the casting vote of one of the judges.

HMRC took the case to appeal. The Upper Tribunal said for the three tax years 2012-13 to 2014-15, Hawksbee’s payments through KPL, obtained from Talksport amounted to approximately 90% of his total income, and he did not work as a radio presenter, in that period, for anyone else.

The Upper Tribunal then analysed two hypothetical contracts, mirroring the fact that there were two actual contracts between Talksport and KPL, and looked again at the issues discussed at the FTT.  These included mutuality of obligation, the question of control, and the degree of Hawksbee’s economic dependency on Talksport, given he had been presenting the show for 18 years without interruption.

HMRC argued that the FTT made errors of law when reaching the conclusion that the actual contracts between KPL and Talksport imposed no obligation on Talksport to provide shows for Hawksbee to present.

Having considered the details of the contract, the Upper Tribunal stated: ‘Hawksbee had to make himself available for work on the show for at least 222 days per year and give Talksport “first call” on his services in connection with the show at all other times.

‘KPL was only paid per programme that Mr Hawksbee actually co-presented and Mr Hawksbee could not work for another UK radio broadcaster.

‘On KPL’s interpretation, despite KPL having accepted obligations that would make it extremely difficult for Mr Hawksbee to earn a living by working full-time for anyone else, Talksport was not obliged to offer KPL or Mr Hawksbee any work at all.

‘We regard that outcome as so contrary to business common sense as to call into question whether it was the true effect of Contract One.’

The Upper Tribunal also considered a number of other issues related to Talksport’s ability to terminate the contracts, and what happened if Hawksbee was ill or unable to present a show.  While the element of control was judged to be ‘narrow’, in the sense that Hawksbee had a high level of autonomy to make many of the editorial decisions about the content of a particular show, the fact that Talksport had ‘first call’ on his services was found to demonstrate a sufficient level of control to indicate IR35 rules were applicable.

The Upper Tribunal stated: ‘We consider, however, that the hypothetical contracts’ duration of two years, with four months’ notice of termination required, was an indicator of employment status and was not (as the FTT considered) a neutral factor. Similarly, the fact that Mr Hawksbee had been presenting, or co-presenting, the show for some 18 years pointed in favour of employment status.’

Overall, the judges said they had come to the conclusion that, irrespective of any reconsideration of the mutuality of obligations or control, the contracts were in fact contracts of employment.

An HMRC spokesperson said: ‘HMRC welcomes this judgment. We are pleased that the Upper Tribunal agreed that the off-payroll working rules (IR35) applied. These rules have been in place for twenty years and ensure that when people with a personal service company work like employees, they pay equivalent tax and National Insurance to employees.

‘Employment status is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.’

Dave Chaplin, CEO of ContractorCalculator said: ‘This is a surprising and unexpected ruling. Some careful analysis will be required before drawing any firm conclusions on how it will impact IR35 and off-payroll for more traditional based contractors.

‘The case law on presenter cases is still settling down through the courts and the decisions being made can appear to contradict each other. All of the cases have their own unique nuances, and a common theme is badly drafted contracts that don’t reflect the reality of the situation.’

Earlier this year, veteran TV presenter Eamonn Holmes lost a FTT appeal regarding his status as a freelancer under IR35 rules, while in October 2019 BBC Look North presenter Christa Ackroyd lost an Upper Tribunal case.

However, Lorraine Kelly’s PSC Albatel, defeated HMRC at an IR35 tax tribunal after successfully appealing a tax bill of £1.2m.

The Commissioners for Her Majesty’s Revenue and Customs and Kickabout Productions Ltd, [2020] UKUT 0216

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