We’ve recently seen published the first IR35 case for a good few years, and the first one HMRC have won in a while – sources are suggesting its the first contentious case they have won in 9 years.

The case is Christa Ackroyd Media Limited v HMRC – read the transcript here.  Christa Ackroyd Media Limited (CAM) was a PSC for Ms Ackroyd (CA) who was a news anchor for the BBC on “Look North”.

The case makes interesting reading.  Its recorded the BBC required CA to work as a PSC, and its recorded that the BBC drafted the contract.  Its further recorded that CA didn’t really understand her company structure – for example dividends v salary – and left it to her bookkeeper (also her husband) and accountant.

Whats telling in the decision are two things – first the amount of control the BBC had over CA, which, given the role of a news anchor is not surprising, and secondly that the BBC declined to provide evidence at the tribunal, following a break down in relationships between CA and the BBC.

Lets look at these points.  First control. There are commonly agreed to be three factors necessary for an agreement to be one of employment or, in an IR35 context, disguised employment – Mutuality of Obligation, Control and Personal Service – all three of these factors must be present, and if one is absent then the agreement cannot be one of employment/disguised employment.  It seems the first and last of these had been seeded in negotiation by CAMs advisers to HMRC – and to be honest with a seven year contract and an express requirement for CA to be the “face” of the programme, thats not unsurprising.  This left control as the deciding factor.  CAMs advisers argued that the control over CA by the BBC was minimal; HMRC found to contrary and the Tribunal sided with HMRC – to be honest, on the weight of evidence recorded, its not surprising.   Bear in mind IR35 is determined on the so called “Hypothetical Contract” – in this case the hypothetical one which would have existed between CA and BBC directly – and taking a step back its hard to think how the production company wouldn’t have substantial control over a presenter?

Secondly, BBCs evidence.  It was recorded early on in the IR35 Tribunals process, by the then Chair of the Special Commissioners – the predecessor body to the current Tribunals of the Tax Chamber – that evidence from the engager – the BBC in this case – was expected by the Tribunal.  Of course the Tribunal cannot force the engager, who is not party to the appeal, to provide evidence, but without its difficult to determine with accuracy the terms of the hypothetical contract.  Its just possible that in this case, with help from the BBC, CAM may have been able to support their evidence that control didn’t exist, and if they had done that then the outcome would have been different.

So what conclusions can we draw?

  1. First, this case was decided on its facts.  Its reported it was a test case for other BBC cases, and clearly there is a political aspect to this in the context of a debate over the ethics of off payroll in the public sector, and scrutiny of BBC employment practices.
  2. It creates some precedent for other cases, albeit not a binding precedent as each case is decided on its facts and, in any event, this was a First Tier Tribunal decision, and FTT decisions create persuasive precedent only.  Cases would have to be on all fours with the facts for this to be a consideration.
  3. The support of the engager in an appeal is vital.  A hostile engager – as it would seem the BBC was by this stage – is clearly unhelpful to an appellant.
  4. The facts of this case were probably weak to start with – its long be known that “bum on seat” engagements are the ones at most IR35 risk, and you can’t get more bum on seat than a news anchor?

Another interesting factor is that CAMs accounts at Companies House reveal an investment property on the balance sheet.  This makes HMRCs collection of the liability much easier.  As a reminder, an IR35 assessment is the responsibility of the company – the PSC – not the contractor personally – in the first instance.  HMRC would need to make a separate case to collect arrears from the contractor personally if the PSC was unable to pay, and its not a foregone conclusion that such a case can be made – it depends on the contractors due diligence around IR35 – and as a firm we’ve had IR35 fail cases become a pyrrhic victory for HMRC for just this reason as the contractor/directors due diligence has shown that there were reasonable grounds for considering the engagement outside of IR35.  However in this case HMRC have assets readily available in the company (CAM) to collect against.  Its risks like this why we advise against mixing trading and investment in a single entity – and its wider than just IR35 risks, any commercial trading risk puts corporate investment assets at risk.  So poor CA has had a lot of stress, some adverse publicity, and she probably looses her nest egg.

So, is the start of a wider crackdown?  Probably not.  Maybe a sector attack on BBC presenters and possibly then independent presenters, and from HMRCs perspective these are good high profile scalps to claim.  But it doesn’t change the position with other sectors and the run of the mill contractor / freelancer – if such a person exists – where cases will be decided on fact.

Finally, how does this tie in with IR35 reform?  Well, BBC is a public sector entity, so from April 2017 the reverse IR35 rules for the Public Sector would clearly have been relevant.

Does the case give us any signals about the proposals to roll out reverse IR35 to the private sector?  Emphatically no.  And the private sector is a different environment – engagers are more savvy, the political spotlight is more diffuse, and commercial factors often align the interests of the contractor and engager.  So whilst everyone needs to beware of the direction of travel with IR35, and the possibility of greater scrutiny, this case isn’t really the starting line.

Whitefield can lay claim to having possibly the longest experience of dealing with IR35 of any accountant in the UK – we started advising on it an hour or so after the 1998 budget announcement when things were very sketchy and it wasn’t known how the press release 35 of the 1998 budget IR series would work in practice – we predicted quickly and accurately the likely conclusion.  Hopefully we bring the same acumen today to the ever changing world.