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IR35: Another win for TV presenter

TV host Helen Fospero is the latest broadcaster to triumph over HMRC at first tier tribunal after a judge concluded that IR35 did not apply to contracts with ITV.

15th Nov 2019
Tax Writer Taxwriter Ltd
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Helen Fospero
Helen Fospero

Helen Fospero is the ninth broadcaster to be hauled over the IR35 coals by HMRC, as listed in our IR35 casebook. There may be more undocumented cases which have not reached tribunal or which have settled without a hearing.

Fospero worked with, and acted as a substitute for Lorraine Kelly, so the circumstances of the two presenters were similar, and tellingly they were both successful at first tier tribunal.

Company required

Fospero set up her company, Canal Street Productions Ltd, in 2002 when the BBC asked her to be the anchor presenter for Look North. At that time, the BBC told her she could not be an employee and must be engaged through a personal service company.

She subsequently used Canal Street to supply her services to a range of corporate clients, including ITV.

This case was only concerned with three contracts between Canal Street and ITV Breakfast Ltd in 2012/13 and 2013/14 for providing Fospero’s services as a presenter on the programmes “Daybreak” and “Lorraine”. During those years, the ITV contracts generated up to 74% of Canal Street’s income, but the company also had 10 to 20 other customers.

The PAYE and NIC at stake in those two tax years was £80,770.96 before the calculation of interest and penalties.

Essential aspects

As with other IR35 cases, the first tier tribunal (FTT) had to consider whether Fospero would have been regarded as an employee under a hypothetical contract between her and ITV (ITEPA 2003, s 49). The terms of that hypothetical contract must be constructed from the circumstances under which the services were provided.

In a very clear judgment, Judge Greenbank set out three essential aspects of an employment contract:

  • mutuality of obligation (MOO) to offer and accept work
  • control by the engager (in this case ITV) over the worker
  • lack of significant indicators of self-employment

No MOO

The FTT found that there was no mutuality between the specific engagements. ITV was not required to provide work outside of those engagements and Fospero was not required to accept work that was offered by ITV. The judge concluded that there was insufficient MOO to establish a contract of employment in this case.

Control

Judge Greenbank was clear that the relevant type of control for this purpose was contractual control.

ITV operated editorial control over the content of the programmes. However, ITV did not control where, when and how Fospero prepared to present those programmes or the words she actually used in the broadcasts. The control which ITV had over Fospero was the same as it applied to any other presenter, whether an employee or not, so it was not indicative of an employment relationship.

Self-employed indicators

There were a number of indicative factors which pointed towards Fospero being self-employed:

  • She provided her own laptop and earpiece
  • She had no office or fixed place of work at ITV
  • She was not provided with an ITV email address
  • She did not receive an expense allowance from ITV
  • Canal Street traded before and after the contracts with ITV
  • Canal Street hired an agent to seek other work for Fospero

There was little risk that Canal Street’s invoices would not be paid by ITV. However, Canal Street would not be paid if Fospero was absent due to sickness, holiday or maternity.

Substitution

The contracts with ITV did not include a right of substitution, as each contract was only to provide the services of Fospero. If Fospero could not perform a particular engagement, it was ITV’s responsibility to find a substitute, not Canal Street’s.

Conclusion

This lack of substitution did not prevent the judge from concluding that Fospero should be regarded as self-employed and not an employee even if she had been engaged directly by ITV. IR35 did not apply to the contracts in question.

Replies (30)

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RedFive
By RedFive
15th Nov 2019 14:10

Why does HMRC keep using taxpayers money to take numerous IR35 cases to court when they have little chance of winning?

Even if they did win, the recalc of CT tax etc means the difference in tax take is not as high as the headline figures suggest (outside of penalties), especially since the introduction of Dividend tax.

It's like some IR35 department was programmed to set forth and investigate cases 10 years ago then the powers that be closed the door on their tiny office and have forgotten they are still there......

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Replying to RedFive:
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By memyself-eye
15th Nov 2019 14:58

Quite: and there's the cost of:- initial PAYE check at the client's premises (two officers) which prompts the Off payroll investigation (3 officers) the initial IR35 determination (one officer) the visit to the engager(s) to establish the facts of the contract (one or two officers) the HMRC internal review (another officer) the neutral ground hearing (4 officers) and if it gets that far the tribunal......

Madness.

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By ireallyshouldknowthisbut
15th Nov 2019 15:16

So presumably the results of all these cases are going to be reflected within the CEST tool such that it gives the correct decisions before the end of March.

Of course they are!

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Replying to ireallyshouldknowthisbut:
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By leon0001
18th Nov 2019 09:54

Oh ye of little faith!

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By johnjenkins
18th Nov 2019 09:56

Let's hope a new regime at HMRC will reflect that IR35 is a nonsense.

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Replying to johnjenkins:
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By rememberscarborough
18th Nov 2019 10:17

The nonsense is that these personal service companies are allowed to exist at all. They are nothing more than a means by both the employer and employee to reduce their tax liabilities. I'm quite sure that should any of the people arranging this artificial construct require NHS treatment they'd make sure they'd be first in the queue despite the fact they pay far less NI than the rest of us. Our tax system is totally broken and it's cases like this that highlight it...

and no I'm not a raving Corbynite because I despise politicians as much as lawyers and those that create our idiotic tax system!!

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Replying to rememberscarborough:
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By johnjenkins
18th Nov 2019 11:01

Although I totally disagree with you, I can understand your feelings.
Let's look at the problem of employment status from another point of view. It is a commercial decision and always has been and nothing to do with HMRC. Had Gordon Brown not squandered all our money we wouldn't be in this position. The reason why IR35 doesn't work is because it is tax creative. Even the OTS saw that.
Yes, our tax system needs scrapping and bringing it into the 21st Century instead of sticking plasters over an outdated and inadequate mess. Just look at the mess MTD for the under VAT threshold business with quarterly accounts (oops updates) will cause.

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Replying to rememberscarborough:
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By C Graham
18th Nov 2019 11:18

Wrong - they are not there to reduce tax liabilities and your reference to the NHS is bizarre? So if someone has no kids and gets no SMP they should presumably be refunded a proportion of the NI they paid because much of NI coves benefits like that. Plus the majority of NI goes to fund state pensions - not the NHS!

The reason PSCs exist is mostly for two reasons.

1/The service provider wants the freedom of being self-employed. Does not want to be tied into employment contracts, controlled by the employer and wants to be able to work as and when and wherever.

There are associated costs - filing accounts, self insuring, and the need to cover illness, gaps in contracts and time off for children, holidays, pension etc.

and there are benefits, the ability to pay dividends, reclaim expenses etc.

A PSC will have to cover themselves for many of the costs which NI pays for in normal employment. The loss of employee benefits that employers are lawfully obliged to pay, pension, sickness, holiday, redundancy, are not available to the self-employed and form a big part of the NI pot.

The self-employed have no protection under employment law.

2/Employers do not always want to increase their workforce obligations - they can resource and outsource as their business requires without having to make pension contributions, holiday pay etc - in fact pretty much for the reasons above.

IR35 is a rubbish idea which was founded on exactly your suggestions but it is just not true and it penalises many small businesses unfairly. It is out of date with contemporary work patterns. Just as co-working spaces are now the norm, so is a flexible workforce.

That should be encouraged, not discouraged.

Scrap IR35 - it has probably cost HMRC more money in fighting failed cases than it ever generated for the public purse.

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Replying to rememberscarborough:
RedFive
By RedFive
18th Nov 2019 11:40

I also disagree with you but understand why you think that.

The link between NI and the NHS was broken a LONG time ago. NI is just tax no different to dividend or corporation tax - of which a Contractor operating via their own limited company can pay a substantial amount of.

The Employer has driven this mess with BBC and HMRC themselves insisting that contractors could only be ‘employed’ via their own companies.

You can’t argue with organisations that big so if you have children to feed and a mortgage to pay what choice do you have. The ‘employee’ gets off without paying Employers NI or pension contributions or holiday pay with the irony being the contractor takes the hit on penalties and back taxes if deemed to be operating as an employee.

That’s the bit that annoys me and the new rules are a step towards fixing it (though yet another plaster rather than ripping the whole thing up).

Hence why the same companies are surprise surprise insisting they now become employees as they won’t take on the risk themselves.

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Replying to RedFive:
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By C Graham
18th Nov 2019 11:51

agree Redfive and loss of income through the PSC means a reduction in corp tax paid - it doesn't generate any more tax and in fact takes more out of the NI pot because the employer has to give statutory benefits and sick pay to contractors. It robs Peter to pay Paul.

My solution would be to scrap IR35 but put all operating PSC into a flat rate vat scheme - generating more for the treasury but without directly hitting the small PSC. As a progressive tax the hit will be further up the food chain but generate more revenue. And would be a reasonable obligation for those operating through a Ltd company.

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Replying to rememberscarborough:
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By SWAccountant
18th Nov 2019 12:14

Crikey, there's so many high horses around this place. As long as you feel like you've shown the correct stance.

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By Ian Bee
18th Nov 2019 12:13

I am a tax consultant and let's say I provide compliance services to a company which is one of a number of clients. Ultimately the responsibility for tax compliance is with the client but I can choose when to do the work in agreement with the finance department, as long as deadlines are met. I am professionally qualified, with my home as a base and I have PII. I don't imagine anyone at HMRC would think that IR35 is an issue.

My friend is in IT and provides services to the same company. He used to be an employee but they made him redundant one Friday then re-engaged him as a consultant the following Monday but would only do so if he formed a company. This he did, and he raises invoices every month. Otherwise the terms of his engagement are almost identical to when he was employed, reporting to the same line manager and his hours of work and holidays are determined by the company. The only other difference is that he gets no sick pay and though there is a theoretical right of substitution, in practice it will never be called on. This situation is pretty much what IR35 was intended to catch.

The problem is, and it is endless in practical application, where to draw the line. The reported cases suggest that the line HMRC draw is well away from the interpretation of the courts but there are grey areas whichever way you look.

As an adviser it is almost impossible to determine whether IR35 will apply other than in obvious cases, so you end up using a specialist firm for the contract which is really taking a sledgehammer to crack a nut.

More sensible would be for the government to perform a proper analysis, identify what the problem really is and come up with a solution that does not rely on drawing conclusions from a theoretical contract.

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Replying to Ian Bee:
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By C Graham
18th Nov 2019 12:48

In theory it should be simple.

Does the person under question receive any statutory benefits of employment, is he/she covered under employment law and is he/she legally and individually accountable for any errors. And are any restrictions placed on the person as to where they can work.

I think that's all that should count. Because if the person is treated as any other employee can expect to be treated, he/she is an employee. But if there are no statutory benefits and a specific contract exists, then the relationship is company and service provider.

The MOO exists in all contracts because a contract has two (or more) consenting parties. That does not mean they must be employer and employee!

Simply there is obligation to provide service/s in return for an agreed value on agreed terms which by the fact that the party making that delivery cannot apply statutory employment conditions (holiday pay, pension contributions etc) means it should not be confused with an employment contract.

All the talk about hypothetical employment is well, hypothetical (or imagined). How can it be used as factual. Either it exists or it doesn't. It should not be possible to say it is hypothetical and base a case on that! Simply that HMRC have had to twist the case to prove IR35 that they use imagined situations!

It is only when the statutory obligations of an employer are put to the test is it possible to see that an employment situation exists.

those who lost their case against the BBC should apply for unpaid holiday, etc

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Replying to C Graham:
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By johnjenkins
18th Nov 2019 13:36

In theory and practice it is simple. HMRC should keep their noses out of what doesn't concern them. If they want to raise revenue stick the basic rate of tax up, like what used to happen years ago.

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By tedbuck
18th Nov 2019 14:31

How about this for an answer to the problem?

HMRC can set up a department with human beings. Contractors can then submit their contracts to that department which can decide whether or not IR35 applies.

In case they get it wrong there can be an appeal process which can address the problem straight away and if HMRC have got it wrong they can be fined and they pay the costs of the appellant.

Interesting? Might save a lot of time wasting and legal fees.

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Replying to tedbuck:
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By memyself-eye
18th Nov 2019 16:00

It's not the contracts but the actual working relationship that HMRC use to determine IR35 status and that can only be established as fact retrospectively. Ponderous and expensive though that process is.

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Replying to memyself-eye:
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By C Graham
18th Nov 2019 16:46

yep and where they are recovering retrospective NI, PAYE based on grounds that the contractor was actually an employee, the employee should be able to retrospectively reclaim unpaid holiday, notice, SMP etc. And possible unfair dismissal if the employer had not followed statutory procedure for ending the employment.

The criteria applied is the problem, it is too vague.

Just scrap IR35 and accept this is how many companies 'employ' talent - niche skills as and when they need them - no 'employer' responsibility required. Suits everyone.

And more profit (dividend drawing) means more corp tax gets paid.

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AIMS Accountants for Business
By AIMS
18th Nov 2019 16:02

It seems that HMRC are applying a "better safe than sorry" approach to IR35 in these cases. It seems like a rather extreme method of ascertaining exactly what's covered by IR35, but I suppose HMRC just want to be sure what counts in the eyes of the law!

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By NHS pension doctor
18th Nov 2019 17:01

One hopes the judge checked the rest of the facts out a little more thoroughly than this statement:

"Ms Fospero was and remains the sole shareholder."

Really?

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Replying to NHS pension doctor:
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By C Graham
18th Nov 2019 17:12

are there others?

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By memyself-eye
18th Nov 2019 17:48

two issues above all determine this. Control and MOO
Moo is a HMRC fantasy that says all contracts have a mutual obligation (they do) and therefore come under IR35 - which is nonsense. Control is the element of 'direction' exercised (actual or assumed) by he who pays the piper. Defeat those and as a contractor you have a chance. It's all bowlocks of course.

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By peterdell
22nd Nov 2019 14:31

IR35 was a nonsense because its down to interpretation.

Two people will view the same contract with life changing tax outcomes that is not a way to run a tax system.

The way to deal with the issue is to treat any contract where one individual spends more than 80% of his/her time with the same contractor for more than 1 year as employment, with the emphasis on the Employer to put them onto the payroll. An objective test leaves nobody in any doubt as to what they should be doing.

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Replying to peterdell:
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By johnjenkins
22nd Nov 2019 15:05

Wrong. The answer is for HMRC to keep their noses out of commercial decisions. Best they chase the likes of multi nationals who can stash their money anywhere without paying due tax earned on trade with this country.

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Replying to johnjenkins:
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By peterdell
22nd Nov 2019 15:47

If you are concerned that multinationals don't pay enough tax there is an easy solution and I go on about this all the time.

The government requests two corporation tax computations one is the usual, the second is based on share of group profit based on the percentage of sales in the UK. So if the group profit is 100m and sales in the UK are 10%, then tax would be the higher of the normal calculation and tax on £10m. Eliminates the need for transfer pricing and all the intergroup transactions which reduces the profit in the UK.

These things are easy to achieve but we live in corrupt times.

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Replying to peterdell:
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By johnjenkins
25th Nov 2019 09:31

What I am concerned about, Peter, is that some of our politicians have a blatant disregard for our democracy, putting either themselves or their party first. There doesn't appear to be anyone who can actually run this country in the way the electorate want it run. The business world do not want restrictions on how it gets it's work done. You need someone in HMRC that is savvy enough to say OK this is 21st century let's make things as flexible and common sense as possible. MTD is a start but not quarterly filing for under the vat threshold business. A good idea turned into a non starter. Multinationals know what their profit is from sales in the UK (please don't try and tell me they don't) so they should pay corporation tax in this country on that profit. HMRC don't have the manpower so they just can't be bothered to chase. Yet they spend endless hours chasing IR35 suspects.

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Replying to johnjenkins:
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By peterdell
28th Nov 2019 08:47

Deleted

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Replying to johnjenkins:
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By peterdell
27th Nov 2019 05:35

Hi John,

Thanks for the reply. You won’t hear any arguments from me against the corrupt nature of the tax system, or the absolute stupidity of the IR35 system.

Give the limited parameter’s in which we operate, I was just pointing out the stupidities within the tax system, and this is just about the most idiotic.

You cannot run a tax system based on feelings. So, you and I can take the same person you can judge them to be outside IR35 and I judge them to be inside IR35 and there are tax differences running into the 10’s of thousands based on how we feel. This is stuff of the 3rd World.

I should point and I was hammered on the website the last I mentioned this, but the entire tax system is a construct for wealthy people to avoid paying their fair share of taxes.

I think everyone would agree that a fair system is one where everyone pays the same percentage of tax. Let’s call it 30%. You could argue the state is useless and so it be 20%. A lefty would argue it is 40%. Either way the same percentage.

The problem is that if I sell a painting then as a wealty person I wasn’t happy paying 30% on the profit so we introduced CGT. If Daddy gives me a billion then I wasn’t happy paying 30% to HMRC so we introduced Inheritance tax. The whole tax system is simply a construct of smoke and mirrors for wealthy people to avoid paying a fair share of tax.

You could rip the complexity out of the tax system by having a flat rate payable on all your income other than say an amount for a personal allowance and small gifts exemptions.

It will never happen because wealthy people don’t want fairness. You hear the same tired arguments you are taxing Christmas presents, this is money that has already been taxed blah blah blah.

No, its because Eddie doesn’t want to be taxed 30% on his billion pound inheritance. And please don’t shout inheritance tax we all know it’s voluntary, in that to get around it you need an F in media studies. So, while someone on £15k pays £1.5k in taxes lardy [***] Eddie pays nil.

The real issue is that the very wealthy have got the income rich middle classes convinced that a flat rate system taxing everything is detrimental to them. What about your £1m house in Barnet blah blah blah, but what about the taxes you would save on £80k over the course of the life, more than make up for the tax on sale.

But we have deluded middle classes supporting the ultra-wealthy and there is nothing more to add.

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Replying to peterdell:
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By johnjenkins
27th Nov 2019 08:43

Take away all nic and have just one rate of tax that applies to personal and corporate business. A personal allowance has to be allied to living needs not just picked out of the sky. "Oh there's an election let's up the PA". If Government wanted to do something they would then have to put basic rate up to suite their borrowing. That way all Governments can be held to account. Of course it's not going to happen. I don't believe in CGT or IHT.
I understand the concept of someone earning £25k paying 30% basic rate and someone earning £300,000 paying 30% basic rate. However this is where the PA and benefits will come in. You can't penalise someone for studying hard for 5 or more years, missing out on going down the boozer with mates, but able to command a higher salary. The opportunities are there for everyone (disabled etc. excluded). As for Royalty. If the Queen charged the market value on rent for all her properties, then paid tax on them, the Government would be well out of pocket. This problem came up many years ago, to be swiftly chastised.

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Replying to johnjenkins:
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By peterdell
27th Nov 2019 10:00

That's my thoughts.

You under tax long term wealth and over tax income (a form of short term wealth) you create disincentives in the wider economy. I am staggered that people don't think that £54.5k Tax and Employees NIC is not enough on £150k salary. Its an eye watering sum of tax. Like you said you forego years of your life and then end up subsidising all and sundry. This creates disincentives in the wider economy.

Good to speak with you unfortunately the VAT deadline waits for no person.

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Replying to johnjenkins:
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By peterdell
27th Nov 2019 10:01

Deleted

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