TV and HMRC - IR35 and Contracts of Employment
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By Alan McCann, Head of Tax Dispute Resolution at DTE Group - trusted partner of the Leonard Curtis Business Solutions Group (LCBSG), providers of the Lifecycle network
At a recent DTE Tax Club, host and Head of Tax Dispute Resolution Alan McCann examined the recent high profile IR35 cases involving TV presenters Christa Ackroyd and Lorraine Kelly.
The former was left with a tax bill of up to £420,000 and Kelly won her £1.2million tax row after a judge ruled that she was not employed by ITV, but rather performed as her "chatty" TV persona.
As with many other presenters, both had been paid as off-payroll contractors through personal companies. HMRC, on the other hand, believed them to be employees so pursued them for back tax.
During the event, we discussed how the application of IR35 rules in these two seemingly similar cases resulted in very different First-tier Tribunal decisions - one with a victory for HMRC and the other with a somewhat embarrassing defeat.
Key case considerations
In both instances, HMRC focussed on the extent of editorial and content control and mutual obligation of both parties. And, as is often the case with contested tax matters, the impression a witness makes on the tribunal can also significantly influence its outcome.
As it turned out, small differences in these apparently similar cases were crucial and led to very different results.
The cornerstone of IR35 case law
HMRC’s approach isn’t new. The 1968 case of Ready Mixed Concrete (RMC) is one of the most important pieces of case law and is considered a cornerstone in IR35 case law used to defend the majority of off-payroll tribunals and IR35 cases to this day.
Despite it not being an IR35 case - IR35 legislation wasn’t introduced until 2000 - RMC remains so important because it sets out specific criteria, including the three key employment tests to determine if a contractor is genuine. These are Right of Substitution, Control, and Mutuality of Obligations, which must exist for a contract to be one of employment. The tribunal assesses all three areas in light of a hypothetical contract to determine what the employment status should be.
In light of these assessment criteria, here we review the similarities and variations of the Kelly and Ackroyd cases to understand how their outcomes were so very different.
How HMRC won the Christa Ackroyd case
Christa Ackroyd was a long-standing and highly experienced TV journalist who had co-presented Yorkshire Television’s news and current affairs programme, Calendar. In 2001, she was recruited by the BBC to essentially revamp Look North, which went head to head with Calendar but pulled in lower viewing figures.
A subsequent contract was drawn up between the BBC and Ms Ackroyd’s eponymous service company. So, the question before the tribunal was, if engagement had been made directly between the BBC and Ms Ackroyd - rather than her company - would there have been an employment contract?
The main argument in this case involved the question of control. Obviously, the BBC has no control over the words that any presenter uses in a live TV programme. However, what was relevant in this case was who had editorial control of the programme. Who determined its content and who had the last word on the matter?
When giving evidence, Christa Ackroyd stated that such control lay with her - that she had a “defining role” in which she could use her considerable experience to change, mould and shape the show. She also said that ‘it was agreed that she could make whatever changes she wanted to the programme’ and that the BBC had given her ‘a guarantee of “independence” and “control”’ and stated that she had day-to-day editorial control.
However, the tribunal did not share her view. Despite there being no suggestion of dishonesty, her performance as a witness failed to impress the tribunal. “We do not consider that she was deliberately trying to evade difficult questions, but we did form the impression that she was keen to identify opportunities to present her case in the best light,” reported the tribunal. “In her evidence she was keen to highlight those features which she considered would help her case, occasionally at the expense of directly answering the questions being asked.”
So, what were the key factors in the Ackroyd decision that resulted in a victory for HMRC?
BBC editorial guidelines
The BBC’s stringent editorial guidelines heavily influenced the tribunal, as they meant that she simply couldn’t have had the control she stated. It found that “it was necessary for the BBC to at least have the power to direct Ms Ackroyd’s work.”
Having been contracted for seven years, the tribunal found that “Ms Ackroyd’s work at the BBC was pursuant to a highly stable, regular and continuous arrangement. It involved a high degree of continuity rather than a succession of short-term engagements. That is a pointer towards an employment contract.”
The wording of the contract
In the wording of the contract with her company, the BBC had first call upon Ackroyd’s services “as it may require” and restricted her from carrying out work elsewhere. From this, the tribunal believed that the BBC could direct not only when she worked but also the work she did - even if it meant reporting on a non-Look North story.
Now let’s take a look at what makes this Ackroyd case so different from that involving Albatel Ltd and its shareholder Lorraine Kelly.
The key arguments in this case were again editorial and content control and whether Ms Kelly was an ‘entertainer’, which would make her agency fees tax-deductible even if IR35 applied.
How Lorraine won the Albatel Ltd case
Lorraine Kelly presented two ITV programmes during the period in question - Lorraine and Daybreak.
Clearly in control
Evidence given at the tribunal suggested that Lorraine Kelly ‘called the shots’ on the running of both programmes - making changes to the script and running order, allowing interviews to overrun and dropping items - which demonstrated that she wasn’t employed.
She played an important role in deciding on guests and also gave examples of when she was unable to conduct interviews as they didn’t fit her schedule.
In this case, the tribunal concluded that ITV lacked the control necessary to render the hypothetical contract one of employment.
Proportion of company income
Also in Kelly’s favour, was the fact that she was free to carry out other work and activities without any real restriction - with anything from one-third to two-thirds of her company’s income coming from sources other than ITV. Ackroyd, on the other hand, depended on the BBC for well over 90% of hers.
Making the right impression
Kelly clearly made a better impression on the tribunal than Ackroyd did before her, which would have influenced the outcome. “Ms Kelly is clearly an intelligent lady who understood the nature of the case and we found it understandable that she sought to understand the questions being asked of her. However, we did not find that this detracted from the reliability of the evidence she gave.”
These are some of the main differences between the two cases and in their aftermath, one can’t help but wonder if there were really quite enough to warrant such contrasting conclusions.
Did it come down to the fact that Lorraine is a star entertainer performing on national TV rather than a lower-profile regional news journalist, like Ackroyd? If it did, is that fair? Did Ackroyd’s performance as a witness let her down? What do you think?
Lifecycle and Alan McCann, along with his DTE team, support accountants to deal with a wide range of compliance matters.
DTE Tax Club is a free lunchtime event designed to provide tax professionals and general accountancy practitioners in the North West with an overview of the latest developments in the tax world. The events take place in a relaxed, open discussion format, giving attendees the opportunity to get involved in discussion, share knowledge and experiences. Details of DTE’s Tax Clubs can be found here.