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Learning lessons from the Kaye Adams IR35 marathon

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Addressing why Kaye Adams’s IR35 case took so long to resolve, Dave Chaplin looks at what we can learn and advises taking HMRC’s guidance with a pinch of salt.

7th Dec 2023
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Much has been written about the case of broadcaster Kaye Adams and her nine-year IR35 nightmare in the case of Atholl House Productions Ltd vs Revenue & Customs. Last week Rebecca Cave described the fight as a marathon and asked, “Why did this dispute take so long to resolve?”

Rather than rake over the finer details of the case embodied in 206 pages of four hearing decisions, let’s address Rebecca’s question. I’ll take you on a personal journey.

Adams first rang me in January 2019 to ask for my help on her IR35 matter. She was heading to a tax tribunal and was concerned about the feedback she had heard from an appeal the previous year where HMRC was represented by two experienced barristers, one a King’s Counsel, against a taxpayer with less experienced firepower. Adams was concerned she may need equally talented representation and quickly instructed Counsel of her own.

Journey towards IR35 advocacy

Six months before her call in April 2018, I’d begun my journey towards IR35 advocacy by attending the IR35 case involving three BBC presenters, Paya Ltd & Ors vs Revenue & Customs – my first tribunal hearing. Before that, I’d read all other 33 IR35 decisions since 2001 and related cases. Since then, I’ve personally attended a dozen more IR35 hearings and helped fight four of them, including hers. 

On top of that, I’ve watched countless other hearings involving status matters, such as Uber and PGMOL, and read volumes of other case decisions, past and present. The rabbit hole goes deep: contractual construction, contractual interpretation and statutory interpretation, to name just a few.

Lessons learned

So, what have I learned from this obsession with status and IR35 from the front line, and how does this tie into the Adams case? Well, firstly, despite becoming an expert on a thing that should not be a thing, that thing is unlikely ever to disappear. HMRC has won the war on off-payroll workers, with many more returning to PAYE. Still, many of us are worried that HMRC has accidentally nuked the freelance sector and distorted the market, undermining the growth engine of the economy – the self-employed.

I’ve learned that winning cases isn’t solely about the law and legal arguments. Facts are everything. And without a robust corroborated fact pattern, the enquiry wheels will keep spinning while HMRC covers its tin ears. Hearsay isn’t loud enough to get them listening.

The third thing is the most alarming. I’ve begun to question how trustworthy the state is and its relationship with natural justice and the rule of law. Regrettably, in my experience, overzealous people in HMRC have skewed, ignored or dismissed the facts designed to fit preconceived views on status. There is an infamous case called MAL Scaffolding vs Revenue & Customs [2006] UKSPC SPC00527, where the Special Commissioner, David Williams, said: “The Commissioners appear to have approached their investigations on the basis that there must be an employment relationship between MAL Scaffolding and the workers there if one looks hard enough. Officers then went looking on that basis and persuaded themselves that they had found that for which they went looking. They have totally failed to persuade me.”

In a case similar to Adams’s, the taxpayer informed me that they had repeatedly told HMRC that what HMRC was claiming was wrong and that HMRC should speak to a list of people (a list of names was provided) who would corroborate what they were saying. HMRC chose not to meet the taxpayer nor reach out to any of the people. The appeal inevitably failed without corroborated facts to discharge the burden of proof.

Strategy explained

HMRC’s Litigation and Settlement Strategy (LSS) is explained in a document titled Resolving tax disputes. The two following sentences are particularly relevant in light of the Atholl House case.

  1. “HMRC will seek to work with the customer to understand fully the relevant facts and law, sharing and testing HMRC’s own arguments, and fully understanding and testing the customer’s arguments, before reaching a considered view on the strength of its case.”
  2. “Resolving those disputes which do arise in a way that establishes the right tax due in accordance with the law at the least cost to HMRC and to its customers. In most instances, this can be achieved through working collaboratively.”

In many cases, including Atholl House, there appears to have been a stark departure from those principles. HMRC publishes many guidelines that the public seeks to trust, but we are often reminded of their reliability. In Revenue and Customs vs Sippchoice Ltd [2017] UKUT 87, Mr Justice Roth said: “Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law. We must interpret the legislation in accordance with the principles of construction described above and if we conclude, as we have, that the legislation bears a different meaning to that found in the HMRC manual, the legislation must be preferred.”

Working conditions

Some more worrying developments are appearing in HMRC guidance around IR35 matters, which do not align with the long-standing law, about which HMRC was reminded by the Court of Appeal. One part of HMRC guidance infers that HMRC will focus primarily on the working conditions of the contract, effectively ignoring the contractual terms. That stance contradicts the statute, common law, rules of evidence, and how HMRC’s Counsel works cases in the tribunals.

So, my IR35 advice to readers is this – digest the HMRC guidance with a pinch of salt, then build a firm foundation on the law, and make sure you have your corroborated facts ready for when HMRC knocks on the door.

Replies (23)

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By More unearned luck
07th Dec 2023 16:37

"In a case similar to Adams’s, the taxpayer informed me that they had repeatedly told HMRC that what HMRC was claiming was wrong and that HMRC should speak to a list of people (a list of names was provided) who would corroborate what they were saying. HMRC chose not to meet the taxpayer nor reach out to any of the people. The appeal inevitably failed without corroborated facts to discharge the burden of proof."

I infer from this tale that the taxpayer didn't appreciate that the burden is on them to adduce evidence including witnesses, and they lost owing to lack of evidence to support their case.

"One part of HMRC guidance infers (sic) that HMRC will focus primarily on the working conditions of the contract, effectively ignoring the contractual terms. That stance contradicts the statute, common law, rules of evidence, and how HMRC’s Counsel works cases in the tribunals."

If you mean the real contracts, then do the paper terms trump reality? If you mean the hypothetical terms of the hypothetical contract these may have been inferred from how the parties behaved in real life.

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Replying to More unearned luck:
Dave Chaplin
By Dave Chaplin
07th Dec 2023 21:08

During the enquiry stage (not tribunal) HMRC were directed to relevant sources but they chose to ignore them - that's the point. Reality does not trump contractual terms - the Atholl House case, at both Upper-tier and the Court of Appeal navigated that terrain in detail - how the parties behaved comes into play when construing contracts, not constructing them using the 3-stage approach in Kickabout. The Autoclenz approach cannot be used.

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Replying to davechaplin:
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By Justin Bryant
08th Dec 2023 09:09

I don't think that's quite right. See: https://www.accountingweb.co.uk/any-answers/interesting-ir35-case-0

I'm not sure if the latest Kaye Adams case addresses the potential (non-Autoclenz) quasi sham point in the above link (or if it was relevant to Kaye Adams' case in the first place). Do you know?

See pages 91-93 here re latest IR35 reforms: https://assets.publishing.service.gov.uk/media/6568b6f82ee693001360cbb5/...

That follows this scandal: https://www.tax.org.uk/mps-irate-at-government-non-compliance-with-ir35-...
https://committees.parliament.uk/committee/127/public-accounts-committee...

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Replying to Justin Bryant:
Dave Chaplin
By Dave Chaplin
08th Dec 2023 21:15

I covered the S&L Barnes case in Taxation and got stuck into the topic of how much "violence" could be done to the contract. https://www.taxation.co.uk/articles/taxpayer-wins-ir35-case-in-s-l-barnes

Where the terms are Standard Form, there appears to be more licence to slightly tinker, but the tinkering isn't wholesale removal, and tends to be more in a Wood v Capital sense, leveraging what was known or reasonably known by the parties.

The key is flashpoints - Atholl UT, para 8.

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Replying to davechaplin:
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By More unearned luck
10th Dec 2023 19:07

"During the enquiry stage (not tribunal) HMRC were directed to relevant sources but they chose to ignore them - that's the point."

OK, but I still don't see how this conduct of HMRC led to the taxpayer losing his or her appeal. It's the taxpayer's responsibility to give HMRC the evidence that supports his or her case during the enquiry stage rather than simply telling HMRC where to look. As I've already said, at the tribunal stage the people on the list should have been called by the taxpayer to give evidence. If they weren't that's not HMRC's fault.

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By johnjenkins
08th Dec 2023 09:49

You can have as many reforms as you like if you have a solid "contract for services" and both parties stick to it then any HMRC challenge will be rebuked.

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Replying to johnjenkins:
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By Justin Bryant
08th Dec 2023 10:05

That's probably only where it's a vanilla SE vs. employment case outside IR35 (i.e. without a PSC) and there is a non-sham (sham case law still applies don't forget - but unlike quasi sham under Autoclenz (now bad law re IR35), sham is very difficult for HMRC to prove) substitution clause. See:
https://www.accountingweb.co.uk/any-answers/substitutes-and-se
https://www.accountingweb.co.uk/any-answers/would-he-be-taxed-as-employe...
https://www.accountingweb.co.uk/any-answers/disagreement-with-employer-r...

As far as I'm aware, the hypothetical IR35 contract does not necessarily have a substitution clause just because there's one in the actual contract. I'm very happy to be proved wrong there with a case law reference.

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Replying to Justin Bryant:
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By johnjenkins
08th Dec 2023 12:49

That's why the actual contract has to be spot on and adhered to so there can be no ambiguity. If you want something that benefits you then do it right, not wishy washy like some I've seen. Oh no you haven't. Oh yes I have.

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Replying to johnjenkins:
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By Justin Bryant
08th Dec 2023 14:11

But IR35 is not so simple, and if it were you wouldn't need all this guidance: https://www.taxjournal.com/articles/hmrc-issues-new-ir35-guidance

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Replying to Justin Bryant:
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By johnjenkins
08th Dec 2023 15:09

Sorry Justin, but it is simple. Just get the "contract for services" right and stick to it. It's no good the contract saying "do the work when you want to" then in actual fact it's stipulated that you have to do the work between 8 and 5.
There is an even more simple answer. HMRC keep your nose out of employment status.

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Replying to johnjenkins:
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By Justin Bryant
08th Dec 2023 15:16

But it is self-evidently not simple, otherwise there would not be 20 years of numerous wrong IR35 tribunal/court decisions (let alone all this updated HMRC guidance) and no "finely balanced" judgments like this one and HMRC's CEST tool would work etc.!

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Replying to Justin Bryant:
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By johnjenkins
08th Dec 2023 15:33

The reason for all these wrong decisions is the fact that the "contract for services" hasn't been done properly (perhaps cribbed off others) or both parties don't stick to the contract.
I'm not a betting man but I'm 100% positive that you will find two cases more or less identical with different outcomes. That's because FTT do not understand what IR35 is all about. That's not because it is difficult, it's because HMRC want to make it as chaotic as possible so they get the default decision.
Whichever way you look at it, to take away the status of a limited company is wrong and when the concept is wrong chaos reigns.

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Replying to johnjenkins:
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By Justin Bryant
08th Dec 2023 15:45

But even of you are right, that doesn't change the patently obvious fact that it is self-evidently not simple does it?

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Replying to Justin Bryant:
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By johnjenkins
08th Dec 2023 16:18

Justin, I think you're missing the point. The art of getting the "contract for services" right and sticking to it is simple.
It's people's blatant disregard (or lackadaisical attitude) and HMRC's realisation of that attitude that is causing the problems.

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Replying to johnjenkins:
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By Justin Bryant
08th Dec 2023 16:36

Let's agree to disagree (I know what you're saying, but that does not mean it's simple per my above comments - very little in UK tax is simple after all).

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Replying to Justin Bryant:
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By johnjenkins
11th Dec 2023 09:04

OK maybe my communication skills lack finesse. IR35 appears complicated because of HMRC trying to control employment status and as there is no law that governs self-employment (in whatever guise) they can say what they like. If you have a watertight "contract for services" and stick to it then you don't even have to think about IR35. You might get challenged but then so can anyone.

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Replying to johnjenkins:
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By Justin Bryant
13th Dec 2023 09:38

The editor of Taxation Magazine agrees with me that IR35 is not simple but is difficult in practice.https://www.taxation.co.uk/articles/this-week's-opinion-14-december-2023

"Fresh approach needed for IR35
The latest decision in the long-running IR35 dispute involving Kaye Adams has received considerable attention. We have commissioned an article on the technical aspects of the decision, so I will not dwell on those here. But I will comment on some of the wider issues.

This is the fourth hearing of the appeal – it started in the First-tier Tribunal (FTT), went to the Upper Tribunal (UT) and then to the Court of Appeal, which sent it back to the UT. The UT then sent the case back to the FTT. Anybody who has read the latest decision in full (tinyurl.com/fttathollhousenov) will know that the result has been a procedural tangle which at times is almost impossible to follow. Large parts of the decision are taken up with the FTT trying to establish what the Court of Appeal actually asked it to do.

Stuck in the middle is the taxpayer who is quoted as saying ‘there is no jubilation for me at this result – the mental stress has been close to unbearable at times’. Has something gone wrong here? Certainly, some commentators have thought so, with one calling for the introduction of a taxpayers’ bill of rights. Others are saying that HMRC was wrong to take the case at all. I can’t agree with this. The tribunal itself described this as a very difficult case which was finely balanced and said that it had reached its conclusion with some diffidence. The courts are there to resolve disputes between taxpayers and HMRC and this is surely just such a case.

The problems, as I see it, are twofold. First, the way that costs are treated in these protracted disputes where things bounce back and forward between courts needs to be looked at. But more importantly it shows again how difficult IR35 is to manage in practice. We really do need a fresh approach."

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Replying to Justin Bryant:
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By johnjenkins
13th Dec 2023 12:39

If you look at the logic of IR35 you have a problem. This stems from the fact that there is no law concerning employment status and HMRC are trying to create one. The reason that there is no law is because most people with common sense realise that employment status is something that you cannot really legislate for. You can tax the different types accordingly but that's about it.
IR 35 seeks to look at the relationship between the worker giver and doer and if it is deemed to be one of employment then tax should be paid on that basis. However you have the small matter of a limited company in the way. The rest is history.
Now forget all that razzmatazz and look at it from the basis of a "contract of service" for the employed on PAYE and a "contract for services" for the self-employed (in whatever guise). That to me Justin is the simple choice. The deemed problems are coming out of HMRC in their quest to put all workers on PAYE. So bypass HMRC. OK they might challenge but that is a whole new ball game.

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Replying to johnjenkins:
Dave Chaplin
By Dave Chaplin
08th Dec 2023 21:19

If the contract is correct and both parties say it is, HMRC have nowhere to go, unless they claim it is a sham - which is a high enough bar as it is, let alone when the contract is not a sham in the first place!

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Replying to johnjenkins:
By tonyaustin
08th Dec 2023 16:43

John, I agree it is wrong to take away company status.
Once upon a time, there was an Investment Income Surcharge, an extra 15% tax on dividends etc. It was more tax effective for a director- shareholder to take a salary than pay CT on a profit and take a dividend. It was also better tax-wise to be self-employed than use a company but risky for the client. That was before IR35 was invented because it would have been pointless.

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Replying to johnjenkins:
By tonyaustin
08th Dec 2023 16:43

John, I agree it is wrong to take away company status.
Once upon a time, there was an Investment Income Surcharge, an extra 15% tax on dividends etc. It was more tax effective for a director- shareholder to take a salary than pay CT on a profit and take a dividend. It was also better tax-wise to be self-employed than use a company but risky for the client. That was before IR35 was invented because it would have been pointless.

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Replying to Justin Bryant:
Dave Chaplin
By Dave Chaplin
09th Dec 2023 11:25

IR35 is not simple, and the new guidance is dreadful in places, contrary to the law.

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Replying to Justin Bryant:
Dave Chaplin
By Dave Chaplin
08th Dec 2023 21:17

The current sub clause dilemma is that it goes into the HC, but then it's given little weight, based on how Pimlico Plumbers et al comes into play - see Judge Beare navigation of the terrain. HMRC have argued it should not go into the HC, in one case I helped with, but they lost on that point. Wasn't written in the decision though. Decisions never a full commentary of what actually goes on.

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