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IR35: Final score for Kickabout Productions

Sports radio presenter Paul Hawksbee has lost his battle to show that his relationship with TalkSport Radio lay outside of IR35, leaving his company Kickabout Productions Ltd with a tax and NIC liability of £143,126.

31st Jul 2020
Tax Writer Taxwriter Ltd
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The first tribunal outing for this case produced a score-draw with one member of the FTT panel deciding that Hawksbee was within IR35, and there other that he was not. As Judge Scott decided Hawksbee was outside IR35, and he had the casting vote, taxpayer won his case.

HMRC has appealed that decision to the upper tribunal.

Under the IR35 rules the court must decide whether under a hypothetical contract between the worker (Hawksbee) and the engager (TalkSport Radio) would be one of employment or self-employment.

Facts

Kickabout Productions Ltd was required to provide Hawksbee’s services to present at least 222 shows per year, in effect a three hour show each weekday for 44 weeks of the year.

Hawksbee was paid a flat amount per show, and had no right to holiday pay, sick pay, employer pension contributions or paternity leave.

Hawksbee had been presenting this show for 18 years, but this case only examined the two contracts which were in place for the years 2012/13 to 2014/15. The first contract prohibited Hawksbee from working for any other UK radio broadcaster during the term of the contract, but he was permitted to do other work which did not interfere with his TalkSport duties.    

The UT looked at these factors in turn.

Mutuality of obligation

This is the obligation on the engager to provide work, and for the worker to perform the tasks requested by the engager. If MOO is present it is generally considered to be a strong indicator of an employment relationship. However, HMRC’s CEST tool doesn’t consider this point.

This was a fundamental point of disagreement at the FTT. Both panel members agreed MOO was present, but Judge Scott thought it was not a strong indicator of employment in this case.

The UT concluded that TalkSport did have an obligation to provide work for Hawksbee under both of the contracts, and in turn Kickabout was obliged to make Hawksbee available, so MOO was present.

The UT concluded that the FTT made an error of law on this point. However, the UT decided not to refer the case back to the FTT, but remade the decision itself.

Control

The FTT decided that TalkSport did have control over where and when Hawksbee provided his services, but not crucially not how he performed the task. HMRC argued that the FTT did not express a conclusion on whether there was sufficient control or not for an employment relationship, but the UT disagreed.

The UT considered the facts relating to control and found that TalkSport had little control over how Hawksbee did his work, but the radio station did have control over what tasks Hawksbee should perform, when and where he performed those tasks. The UT concluded there was sufficient control by TalkSport over Hawksbee to be consistent with an employment contract (inside IR35). 

Other factors

For completeness the UT considered what other factors pointed at self-employment or an employment relationship.

The pointers towards employment were:

  • The fact that Hawksbee had been presenting the show for 18 years
  • Hawksbee could not provide a substitute
  • There were exclusivity provisions in the contracts
  • The contracts required four-months’ notice of termination 

The pointers to self-employment included:

  • Fixed fee per show, which demonstrated a degree of financial risk
  • Narrow task to be performed
  • No worker rights such as sick pay, holiday pay
  • No intention to form an employment contract
  • No requirement for Hawksbee to complete training or undertake medicals
  • Hawksbee was not part and parcel of the organisation

The UT considered that the factors above were not inconsistent with the hypothetical contract being one of employment.

How the decision was made

How the UT reached its decision is important for subsequent IR35 and employment status cases.

Since Hall v Lorimer [1994], tax advisers have been taught to that it is necessary to look at all of the factors in the case which point either at employment and self-employment, and take a balanced view. However, in this case the UT appeared to ignore the “stand back and look at the picture” approach in favour of a ridged three step process:

  1. Is there sufficient MOO for employment relationship, if not go to step 2. 
  2. Is there sufficient control for an employment relationship, if not go to step 3.
  3. Look at all the other indicators of employment and self-employment and take a view.

The UT examined the MOO factors and concluded that they were strong enough to indicate an employment relationship. This supported one ground on which HMRC appealed the case, and the UT considered this was sufficient to remake the FTT decision without having to consider the other grounds of appeal.      

However, the UT did consider the matter of control and the other factors as described above.

Replies (21)

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By rememberscarborough
03rd Aug 2020 10:14

18 years working for the same company and little or no other employment elsewhere shows that the bloke is an employee regardless of what the tax system says. It's ridiculous that our tax system is so convoluted that there are so many ways to reduce your tax liability regardless of what job you do.

If the law is an "donkey" then I hate to think what the tax system is...

PS Having to use the word donkey because the other word for a similar animal is seen as offensive by this website. Go figure...

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Replying to rememberscarborough:
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By IANTO
05th Aug 2020 15:01

Case law has shown that length of contract isn't necessarily a pointer to employment. I've effectively worked for the same client for 20 years, albeit through different intermediate organisations and my contract has been professionally determined as not subject to the IR35 rules.

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By Mikolaj
03rd Aug 2020 10:52

The law is an donkey and that is not in doubt, but the plain facts of the case are incongruent with the upper tribunal findings; they have ignored critical factors and decided to make a decision with blinkers on. This result is perverse and should be properly appealed, the Court of Appeal or even Supreme Court have better sense, they will overturn this.

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By cfield
03rd Aug 2020 10:59

I can't help feeling that tribunals are sub-consciously allowing politics to get in the way of these IR35 decisions. There are cases going HMRC's way now which probably wouldn't have done a few years ago. The goalposts are being subtly shifted in favour of the authorities.

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Replying to cfield:
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By IANTO
03rd Aug 2020 11:55

"I can't help feeling that tribunals are sub-consciously allowing politics to get in the way of these IR35 decisions."

I would tend to agree. However, is it not time for individuals so judged to use the FTT and UT decisions and take their cases to the Employment Tribunal to upset the politics. I guess in this case the individual still has a relationship with the "disguised employer", so there would be no out of time issues. However, the ET will allow cases to be heard out of time, providing that there is a justifiable reason for doing so. I would contend that a historic IR35 decision should qualify.

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By SBS33
03rd Aug 2020 11:05

AccountingWeb: Please proof read articles before publishing them.

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By jamiea4f
03rd Aug 2020 12:29

One suspects there'll be a fair few of these cases going HMRC's way to attempt to pay for Boris's cash splash to save the economy over the "virus"....

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By johnjenkins
04th Aug 2020 09:25

Same old, same old. HMRC should not get involved in employment status. It is not a tax situation it is a commercial one. Of course Government won't see it like that because they want money from any which way they feel is appropriate.

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Replying to johnjenkins:
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By IANTO
05th Aug 2020 09:34

"should not get involved in employment status"

I completely agree. Employment status should only be decided by the ET and EAT and then the tax status should be determined as a result. To allow another court, i.e. the FTT, to get involved with employment status cases, clearly risks the two courts coming to different conclusions, although as far as I'm aware, this has never happened to date.

It's interesting to note that with all the rhetoric and campaigning in the past, there has been no real interest in advancing this approach. Yes, we have the Taylor report, but clearly HMG do not want to implement some parts of it.

IR35 was always a sly attempt at by-passing the employment and contractual issues as invariably HMRC challenges are out of time for the ET. Don't forget that the FTT was originally called the "Commissioners for Taxes", so its name change is another sly attempt to conceal its true function.

There again, no one has seen fit to clarify the out of time provisions with regard to retrospective IR35 judgements. ET rules allow for out of time claims, providing there is good reason for the appeal. I can't think of a better reason than a retrospective FTT judgement.

A straightforward letter to the ET/EAT from the 10 organisations who have lobbied HMG in recent times, asking for clarification on this issue wouldn't go amiss.

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By AndrewV12
04th Aug 2020 12:11

The first tribunal outing for this case produced a score-draw with one member of the FTT panel deciding that Hawksbee was within IR35, and there other that he was not. As Judge Scott decided Hawksbee was outside IR35, and he had the casting vote, taxpayer won his case.

To be honest Hawksbee was never going to win his case, the Government have been pushing IR35 for years, they are not going to let someone like Hawksbee challenge and win his case. For at least 10 years of cranking up IR35 it would go down the pan in one tribunal case.

I have no idea who appointments Judge Scott or any other of the judges, or why they are chosen and not others.

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Replying to AndrewV12:
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By IANTO
05th Aug 2020 15:07

It would be interesting to see some statistics regarding the proportion of all FTT and previous Commissioners cases which HMRC won and where the tax payer won. At least we'd have an idea how un-biased this court structure is then.

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Replying to IANTO:
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By johnjenkins
05th Aug 2020 15:31

It's all to do with the "contract for services" and presentation. Meaning a case could go either way depending on above.

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Replying to johnjenkins:
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By IANTO
06th Aug 2020 09:25

Yes, I am fully aware of the legal niceties, as I've represented myself at the EAT. But IR35 seeks to circumvent the legality of a "for services" contract, by ignoring all the contractual provisions and looking only at the actual working relationship. In my opinion, the ET is more likely to come to the correct judgement for any engagement than the FTT would. Some commentators here seem to reflect that opinion also.

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Replying to IANTO:
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By johnjenkins
06th Aug 2020 09:48

Therein lies the answer. A "contract for services" has to be water tight and adhered to in the working relationship. Although my view is that HMRC should never get involved in employment status, when they do you have to make sure everything is kosha.
A very simple example is "putting the spouse (or indeed any body) on the books". If you pay them and the money goes into their account any challenge can be met. If you don't pay them but put them through the books then you're wide open for a challenge.
The control bit in the new rules is very easily overcome as it is the client not the contractor that does the controlling. A school is a classic example. Work has to be controlled around school times.
Spend a bit of time on the "contract for services" so that it can be adhered to and HMRC will lose every case. I know it's a pain, but needs must.

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Replying to johnjenkins:
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By IANTO
06th Aug 2020 13:04

"A very simple example is "putting the spouse (or indeed any body) on the books". If you pay them and the money goes into their account any challenge can be met. If you don't pay them but put them through the books then you're wide open for a challenge."

I don't quite understand what you are saying here. However, for my part, MyCo pays myself and my wife the minimum wage rate based on the hours that we work, and the relevant tax and EERS NI are paid. We are both pensioners, so EES aren't payable. We are also joint equal owners of MyCo, and so dividends are paid equally and are registered on our self assessment forms.

I'm not sure what other arrangements anyone could or want to get away with, but I've always conducted my business in such a way as to be able to defend against any HMRC challenge, i.e. I don't engage in "creative accounting". Clearly with respect to IR35, I have tax investigation insurance.

However, given my track record with brushes with HMRC, I guess they'd want to leave me alone, which they appear to have done for the best part of 20 years.

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Replying to IANTO:
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By johnjenkins
06th Aug 2020 15:03

What I am saying quite simply is that if your "contract for service" doesn't match up with the way the work is carried out then you're asking for trouble and that has always been the case.
In your scenario if the money went into separate or joint accounts there is no problem, but if the money all went into your account then there could be.

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Replying to johnjenkins:
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By IANTO
07th Aug 2020 08:15

Yes, I am aware that the contract needs to reflect the actual working arrangements, but there should be additional factors present to strengthen the position. These may not necessarily be contractual or related to the working arrangements, e.g. the presence of insurances etc.

For the record, all monies from MyCo are paid into our joint bank account and always have been.

However, what is iniquitous about IR35 is that an individual can have multiple concurrent clients and one or more of the engagements could be subject to IR35.

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Replying to IANTO:
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By johnjenkins
07th Aug 2020 12:06

The Multiple concurrent clients scenario is not just a problem with IR35 it can be a self-employed person that is on PAYE as well due to contractual arrangements. I dare say a limited company can have 4 or 5 clients yet only 2 fall into IR35. A ludicrous situation. Until the Government realise employment status is a commercial decision then this smelly stuff will continue and get worse.

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Replying to johnjenkins:
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By abelljms
03rd Sep 2020 13:24

It's interesting in the Case summary, we are not told if any evidence was offered concerning other clients the appellant had - was there any attempt to demonstrate he was in business on his own account providing this type of service to various broadcasters/media outlets, and it all being billed out through his company etc? And of course the other killer could be if he was issued a BBC ID card?

johnjenkins wrote:

The Multiple concurrent clients scenario is not just a problem with IR35 it can be a self-employed person that is on PAYE as well due to contractual arrangements. I dare say a limited company can have 4 or 5 clients yet only 2 fall into IR35. A ludicrous situation. Until the Government realise employment status is a commercial decision then this smelly stuff will continue and get worse.

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Replying to abelljms:
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By IANTO
03rd Sep 2020 15:10

"we are not told if any evidence was offered concerning other clients the appellant had"

This is the iniquity that IR35 creates. It would seem that it is possible for an individual to have multiple clients/contracts and in an extreme case, all could be subject to IR35 as a hypothetical contract of employment could exist for each engagement. This is clearly an absurdity, as for IR35 the FTT looks at each contract in isolation from any other factors.

I still firmly believe, as I have done now since the inception of IR35, that this absurdity will not be killed off until a judgement in the FTT is taken to the ET.

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By abelljms
03rd Sep 2020 13:26

Just to be clear....
"The UT considered that the factors above were not inconsistent with the hypothetical contract being one of employment."

I think you are saying "The UT considered that the factors above were consistent with the hypothetical contract being one of employment, and therefore that the appellant is snookered (caught by ir35)".

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