This month’s Chartered Accountants Tax Case Digest examines an appeal to the Upper Tribunal against the decision of the First Tier Tribunal (“FTT”) that the intermediaries legislation (“IR35”) applied to the taxpayer in the context of broadcasting. The FTT decision in this case featured in the August 2019 edition of tax.point.

Last month we featured a case heard at the FTT where HMRC were unsuccessful in the context of IR35.

Background

Christa Ackroyd is a television journalist engaged in a variety of media roles since the 1970’s. In 2001 she began to present “Look North” on BBC1 and continued to do until 2013.

Ms Ackroyd worked at the BBC as a result of two fixed term contracts between the BBC and the appellant, Christa Ackroyd Media Ltd (“CAM Ltd”), a personal service company. The first contract was dated 2001 and was followed by a later contract in 2006 which was terminated in 2013. The contracts required CAM to provide the services of Christa Ackroyd for up to 225 days per year.

HMRC issued determinations to CAM Ltd in respect of PAYE and Class 1 national insurance on the basis that the IR 35 legislation applied. The appeal covered the tax years 2008/09 to 2012/13 inclusive and totalled almost £420,000. Ms Ackroyd contended that the liability was £207,000 in total if the appeal was not successful.

HMRC made the determinations and decisions on the basis that the hypothetical contract between the BBC and Ms Ackroyd would have been a contract of service rather than a contract for services contending that Ms Ackroyd’s status was that of an employee and that CAM Ltd should therefore account for PAYE and NIC accordingly.

Ms Ackroyd contended that her status is that of a self-employed contractor meaning there is no further liability on the part of CAM Ltd.

The FTT found that the hypothetical contract would have been a contract of employment as:

• the BBC ultimately had the right to specify what services CAM Ltd would provide;
• the BBC had control over content, given its editorial responsibility (despite Ms Ackroyd’s ability to ad lib in a live news environment);
• there was mutuality of obligation: Ms Ackroyd was contractually obliged to perform the services and the BBC was contractually obliged to pay fees to CAM Ltd on a monthly basis;
• CAM Ltd had to provide MS Ackroyd and could not provide a substitute and
• Ms Ackroyd’s contract prevented her from providing services to other organisations in the UK without the BBC’s consent.

The FTT concluded that, making a qualitative assessment of the facts, it considered she was an employee under a hypothetical contract. If the services provided by Ms Ackroyd had been provided under a contract directly between the BBC and Ms Ackroyd, then she would have been regarded for income tax purposes as an employee of the BBC.

CAM appealed this decision with the permission of the FTT on the sole ground that the FTT erred in law in its conclusion that the BBC had sufficient control over Ms Ackroyd to mean that an employment relationship would have arisen if the services had been directly supplied.

Decision

The UT set out that the first condition for the existence of an employment relationship, mutuality of obligation, had been established by the FTT. The third condition was also met as the FTT had found that overall ‘the other provisions of the hypothetical contract were largely consistent with employment status’. The UT therefore considered there to be only the issue of whether the BBC had sufficient control of Ms Ackroyd to establish an employment relationship.

The UT considered that the tribunal should ask itself the following question:-

“In so far as the contract does not deal explicitly with all aspects of control, is it appropriate in view of the contract, and the wider context, to conclude that ultimate control in relation to Ms Ackroyd’s services lay with the BBC?”

It therefore considered that the FTT had made an error of law when considering whether ‘a right of ultimate control’ was an implied term of the contract. The UT’s view was not the right test. However, the FTT’s conclusions in relation to control had been relevant to a broader process of construing the contract and the context in order to determine the extent of the BBC’s control over the “what, how, where and when” in relation to Ms Ackroyd’s services. Although the FTT had taken the wrong approach, it had still reached the correct conclusion in the context of ultimate control.

The UT also rejected the distinction made between input and output and said it would be highly artificial to distinguish between the work and the finished product (usually an episode of Look North). Similarly, the UT said that a consideration of the subjective intentions of the parties was not required and that consideration of the terms on which the services were provided was the test. As a result, the most important issue was not whether the BBC would in practice control Ms Ackroyd, but whether it could do so.

The UT found that the context suggested that the BBC, through the editor, would have control over content, given the BBC’s editorial responsibility. This was also consistent with the BBC’s Editorial Guidelines. In this respect, the UT agreed with the FTT’s conclusion that “it did not matter that Ms Ackroyd was not contractually bound by the Editorial Guidelines because both parties understood that the BBC could enforce those Guidelines if necessary”.

For the reasons given, the UT concluded that the FTT made no error and dismissed the appeal.

The full judgment in this case is available from:- https://assets.publishing.service.gov.uk