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Court of Appeal toys with self-employed definition

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Two Court of Appeal IR35 cases reinforced the importance of the contract in establishing employment status.

10th May 2022
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Marking the first time that the intermediaries legislation or IR35 has reached the Court of Appeal, the same panel of judges reviewed two cases in parallel. The judgments on both the Atholl House and Kickabout appeals were handed down on 26 April 2022. 

The Court of Appeal dismissed the appeal by Kickabout (Kickabout Productions Ltd vs HMRC [2022] EWCA Civ 502) and remitted the appeal in Atholl House (HMRC vs Atholl House Productions [2022] EWCA Civ 501) back to the tribunal but having agreed with HMRC in both cases. 

In cases involving IR35, the court is looking at a hypothetical contract and this is where the problem lies. The employment status of “self-employed” and “worker” are treated differently for tax purposes.

A tale of two cases

The Kickabout appeal was fairly straightforward and based mainly on the fact that Talksport radio was required to offer Kickabout work for presenter Paul Hawksbee on 222 programmes per year and Kickabout was obliged to make Hawksbee available to do that work. So, there were mutual obligations, but control was also a significant factor. The takeaway from this case is that it was the schedule to the contract that defeated the employment status claim even though there was no mutuality clause in the body of the contract.

The case concerning freelance journalist Kaye Adams and her company Atholl House was far more complicated. Although HMRC won the appeal, it has been remitted back to either the first tier tribunal (FTT) or the upper tribunal (UT) to re-make the decision, based on fresh guidance from the Court of Appeal. 

Atholl House was hoping it could rely on the principle established by the Supreme Court in the Autoclenz Ltd vs Belcher [2011] UKSC 41 case, that the terms of the written contract did not reflect the actual agreement between the parties. On the basis that the contracts were to be read as if they did not contain the provisions regarding exclusivity and consent, the FTT found that the contracts were not contracts of employment. 

This principle was central to the Atholl House case, but citing the more recent Uber self-employment status case, the Court of Appeal decided that the appeal did not fit the Autoclenz model. Therefore, in essence, the principle could not be used in a case that is not concerned with the definition of “worker”. 

The takeaway from this is to make sure that the contracts and the schedules reflect the true reality of the relationship.

Third stage of RMC

The Court of Appeal also gave fresh guidance on the third stage of the test in Ready Mixed Concrete (“RMC”). It is useful that the guidance clarifies the position on mutuality and control and the first two steps of RMC. They should be treated separately from other factors and as a pre-condition to a finding of employment. The fact that they are present, however, does not mean that there is automatically a contract of employment, not least in the strict sense that HMRC would prefer.

For the third stage, however, I find the guidance of the court less helpful. The advice is: “What is now required is an assessment of whether overall there would under the hypothetical contracts have existed an employment relationship between Ms Adams and the BBC.” I can’t see how this is different from what we already know although apparently: “That contract, like any other agreement in writing, should not be construed in a vacuum, but in the light of the admissible factual matrix.” 

Further general guidance was that an individual can in the same tax year be both employed and an independent contractor. Secondly, it is not the terms and conditions of Ms Adams’ other engagements that are in issue, but the terms and circumstances of the hypothetical contracts with the BBC. This seems to be ruling out the fact that if the individual has multiple clients or other business opportunities; it should not distract the assessment of employment status for the engagement in question.

An Adrian Chiles rematch

This was seen in another recent IR35 case in the FTT, Basic Broadcasting Ltd vs HMRC [2022] UKFTT TC02995, involving another TV presenter, Adrian Chiles. This case followed the example of the UT in Atholl House in using the “in business on your own account test”. Based on the judgment from the Court of Appeal in Atholl House, HMRC will now be champing at the bit to appeal the Chiles case, which it lost at FTT.

Contracts are king

In practical terms, what can we take away from all these cases with so much uncertainty? One stand-out point is that the contract is an important memorial of the relationship and having one properly drafted that reflects the reality is critical to the success of establishing employment status. The second point is the schedule or statement of work, which very often lets the contract down by conflicting with its contents, as seen in Kickabout.

No dramatic departures

The impact of this case will remain to be seen because it may yet be overruled by the Supreme Court. The Court of Appeal has certainly narrowed some of the factors to their strictest sense but, they have not gone as far as HMRC would have liked, so that is a blessing.

Other than not allowing the use of Autoclenz, I don’t see any dramatic departures from what we already know. Start with RMC and the first two steps of mutuality and control and then establish whether the other provisions of the contract are consistent with its being a contract of service and this applies to employment status generally.

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By Justin Bryant
10th May 2022 15:27

"Secondly, it is not the terms and conditions of Ms Adams’ other engagements that are in issue, but the terms and circumstances of the hypothetical contracts with the BBC. This seems to be ruling out the fact that if the individual has multiple clients or other business opportunities; it should not distract the assessment of employment status for the engagement in question."

Yes; that's how I read it too, but that seems to be an overly restrictive interpretation of the 3rd RMC test and if correct will leave Adrian Chiles a bit worried as you say.

Interestingly this other recent CoA case did not really consider the 3rd RMC test when it mentioned the FTT (wrongly) referring to it as a negative test: https://www.bailii.org/ew/cases/EWCA/Civ/2021/1370.html

But then HMRC v PGMOL was a pretty opaque decision overall*.

That I guess is the only other significant thing/change with these latest CoA cases, plus confirming control can be additionally considered in that 3rd RMC test.

* If the CoA there said that all that's required re MOO is a contract** then that's ridiculous, as that's not a distinguishing test at all! See: https://www.boyesturner.com/news-and-insights/ir35-and-employment-status...

But did it say that? See: https://www.accountingweb.co.uk/any-answers/hmrc-v-pgmol-coa-moo-still-a...

**In contrast both Atholl House and Kickabout seem to say (more traditionally) that work has to be provided by the engager and personal services provided by the individual re MOO i.e. there's more to the MOO test than there just being a contractual relationship of any kind.

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Replying to Justin Bryant:
By tonyaustin
11th May 2022 11:43

Rightly or wrongly, my understanding of MOO was that, as in a typical employment, the employee is obliged to be available for work on certain days, between certain hours or for a certain number of hours in a specific period and to do whatever work they are given by the employer, within their job description, during that time. The employer is obliged to pay them for their time, whether or not the employer gives them any work to do. In contrast, a self-employed person is only obliged to carry out a task and the client is only obliged to pay for that task being done satisfactorily according to the contract. That is what the RMC case always seemed to me to be saying.

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By johnjenkins
11th May 2022 12:05

What a mucking fess. As I have said before you need a contract for services and stick to it.
It is now becoming clear that whatever contract you take on you need the same CFS. When will Government learn that once you get rid of the SE, stagnation will occur almost instantly. We can't even get people back to the place of work.

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By raycad
11th May 2022 12:29

"This seems to be ruling out the fact that if the individual has multiple clients or other business opportunities; it should not distract the assessment of employment status for the engagement in question."

Justin has already homed in part on this comment. For myself, I would say that it does seem to be somewhat at odds with the judgement in Hall v Lorimer, also a Court of Appeal case. The key wording from the Judgement in that case was:

"The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance....." These words were actually the ones used by Mummery J in the High Court hearing but were affirmed by Lord Justice Nolan in the C of A lead judgement.

I appreciate that there were multiple short-term clients in the case of Mr Lorimer and the C of A in the Kaye Adams judgement may have decided that this was sufficient to distinguish her from Hall v Lorimer. Nevertheless, I remain uneasy with the view expressed that the existence of multiple clients should NOT impact upon the employment status decision for the hypothetical contract under scrutiny. The C of A are entitled to distinguish the two cases but they are not entitled to overrule Hall v Lorimer - only the Supreme Court can do that.

Oh for a Statutory definition of employment status! Will it ever happen? Probably not in my lifetime!

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Replying to raycad:
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By Justin Bryant
11th May 2022 12:51

Agreed. Before the Atholl House CoA case I don't think anyone appreciated that you could not look beyond the contract(s) in issue re the 3rd RMC test and the CoA appear to cite no case law in support of this new, stricter, narrower view and indeed they appear to overlook all the cases pointing the other way as you say.

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