IR35: Holmes under the hammer

Eamonn Holmes
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HMRC is challenging the pay ITV host Eamonn Holmes received through his limited company. If Holmes is found to be in breach of IR35 rules, it is believed his company’s tax bill could be as much as £2m.

In an interview with the Mail on Sunday, the ‘This Morning’ anchor revealed that HMRC has launched a ‘test case’ against him, claiming unpaid taxes from the past seven years.

Holmes went on to state that if he loses the case other ITV stars will be targeted next. “If they win against me they will go after everyone else, everyone. Ant and Dec will be next,” he said. “I was in court in Central London for a week in June. I’ve been freelance for 28 years and that’s been okay. Now they’ve said it’s not okay.”

No verdict has yet been announced from the case. While HMRC’s chances of winning the case on mutuality of obligation grounds appear small, the tax authority may also have argued that Holmes, who presented the first ever GMTV for ITV back in 1993, has become integral to GMTV as an organisation.

The news comes as rumours of the Treasury finalising plans to roll public sector off-payroll rules to private firms gather momentum.

Presenters off the payroll

Holmes is not the only high-profile news anchor to come under the IR35 microscope. Earlier this year former BBC presenter Christa Ackroyd lost an appeal when the first-tier tribunal ruled her personal service company owed income tax and national insurance contributions (NICs) amounting to almost £420,000. Although she is understood to be appealing against that ruling.

BBC Radio star Jenni Murray is also reportedly facing a significant tax bill under IR35, following a winding-up of her PSC to join the BBC’s payroll.  

Organisations such as the BBC have come under criticism for allegedly coercing presenters to claim salaries through personal service companies, therefore avoiding additional employer taxation liabilities.

Policy ‘has been the same for years’

Responding to the Eamonn Holmes interview, an HMRC spokesman told The Mail on Sunday: 'It is clear that most TV presenters will fall into the category of being employees based on the nature of their work, and the policy that sets this out has been the same for years.

However, Holmes claimed there was “no one more freelance than me,” and that HMRC had “reinvented the rules”.

Holmes is estimated to earn around £700,000 a year from his TV work, although the exact arrangements through which he is paid by ITV – which is understood to be the end user in the case – are not known.

His company, Red White and Green Ltd, had just under £3.1m in cash, according to its latest accounts dated 30 April 2017.

Those whose tax status is successfully challenged by HMRC under the IR35 legislation could see the tax bill for their companies double, with interest, National Insurance payments and penalties possibly added. The power also exists to transfer any liabilities from a personal service company to an individual director.

HMRC should ‘tread carefully’

Given the complexity surrounding IR35 legislation, leading voices from the contracting sector have warned HMRC to tread carefully when it assesses cases such as the one involving Holmes.

Qdos Contractor CEO Seb Maley commented that it was vital HMRC goes about this case and others in the right way and assesses the unique aspects of Holmes’ (and any other presenters’) working arrangements.

“[HMRC] cannot simply assume that one presenter’s status sets a precedent for every contractor engaged by ITV,” said Maley. “Given HMRC’s unpredictable nature, it’s increasingly important that freelance presenters, and all other contractors for that matter, are confident of their IR35 status, and can put forward a strong argument that they are genuinely in business on their own account.”

Dave Chaplin from ContractorCalculator told AccountingWEB that he believes in this particular case HMRC is focussing its attention in entirely the wrong place.

“The fact is that high-paid freelancers who earn six figures now pay more tax by operating via a limited company than an employee on the same salary,” said Chaplin.

“The tax efficiencies achieved by hiring someone on a self-employed basis are actually obtained by the firm that hires them, in this case, ITV, who would have avoided having to pay Employers National Insurance of 13.8% on top of whatever monies were paid to Mr Holmes. To suggest that Holmes has avoided tax is pointing the finger in entirely the wrong direction.

“HMRC changed the rules for IR35 in the public sector from April 2017, and now if they find a ‘deemed employee’ the Employers National Insurance is paid by the firm hiring the contractor,” continued Chaplin. “If ITV was a public sector broadcaster and Holmes’s situation was under the IR35 microscope under the new rules, ITV would have a tax bill to pay, and Eamonn Holmes would probably end up with a tax refund.”

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.

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12th Oct 2018 10:33

I think the commentary from Qdos and Dave Chaplin is correct in that all these situations turn on the detail.
For example, HMRC may say that Mr Holmes has become "integral" to ITV's shows, but is it not the case that ITV has designed the shows around Mr Holmes? If that is the case, then if he decides to go in a particular direction, how will ITV exercise supervision, direction and control of his actions?
They won't. In the case of Christa Ackroyd, this point was tested and there the fact that the BBC had an internal policy which everybody had to follow and a format for the show which was largely unchanged whether Ms Ackroyd was there or not, were seen as important.
The first point has been dealt a blow by the PGOML case where premiership referees were held to be self employed. The second is a classic piece of misdirection by HMRC who persuaded the Tribunal to look at the wrong issue.
Given that there was a carefully stage managed "leak" of news that IR35 reform may be extended in the Budget this month, HMRC is clearly indulging in its favourite trick of putting up some famous faces and showing the hoi poloi that nobody is safe.
This is to deflect from the fact that 90% of IR35 status cases are lost by HMRC.
I wish Mr Holmes luck in defeating HMRC dogma but I suspect that - as observed by many professional bodies in giving evidence to Parliament - HMRC will pursue this case all the way to Supreme Court despite having a weak case and operating outside the terms of their own Litigation and Settlement Strategy which must now I think be regarded as not worth the paper it's printed on.

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12th Oct 2018 10:50

Extract above
'claiming unpaid taxes from the past seven years.'

Its what I always said, if you can get a scheme in palce for around 15 years, even if you are rumbled, you may still be ahead of the game.

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to AndrewV12
12th Oct 2018 10:58

Yes; that's the case where there's a discovery assessment, although it should be limited to 4 years if he has been professionally advised (and so not careless re the alleged loss of tax).

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12th Oct 2018 11:50

Isn't "mutuality of obligation" present in every commercial contract ever!!!

I.E. The contract obliges one party to supply goods or services and obliges the other party to pay for that supply

Or am I being too simplistic?

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12th Oct 2018 12:27

Obviously that's right and CIoT etc. have pointed out that HMRC are being disingenuous there (and at least the tax judges aren't fooled by that one).

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12th Oct 2018 13:33

No. In this context MOO only exists in contracts of employment. An employer is obliged to pay an employee even when there is no work to be done, and an employee is obliged to turn up for work regardless of what the employer needs them to do.

In the case of freelancers this doesn’t apply, as if there is no work to be done there is no obligation on either side either to pay or to be available to work.

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to sightblinder
12th Oct 2018 16:35

You are as bad as HMRC in misunderstanding the point being made here (MOO exists in all contracts but there is a special type of MOO that exists in contacts of services and HMRC totally glosses over that important distinction when arguing MOO applies i.e. HMRC simply resort to the non-special MOO in their IR35 arguments, which is ridiculous as that applies in every contract regardless)!

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to sightblinder
12th Oct 2018 14:39

I'm afraid that the answer is not 'No'. Every contract does indeed have MOO - that's why you can sue if the other party does not meet its obligations, and why you sometimes need a deed if you want a binding obligation with nothing given in return.

The key point about MOO in the status area is the *nature* of the obligations, and the considerations differ depending on whether you are looking at employment law or tax/NICs.

To enforce some employment rights (eg, unfair dismissal), you need a minimum period of continuous service. If the mutual obligations cease between engagements, you don't qualify because you don't have continuous service (look at O'Kelly v Trusthouse Forte). That doesn't mean the worker is not employed when actually working: you have to think about different rights and obligations for that.

The classic case on MOO and status for tax is Express & Echo v Tanton. One of his obligations was to find a substitute if he couldn't deliver the service for which he'd contracted. He did so, due to injury preventing his driving the van, which demonstrated a real right of substitution that the court could not disregard as window-dressing. An employee commits to personal service, but if you can send somebody else at your volition, you can't have the obligations of an employee to an employer, so you are self-employed.

By the same token, if you have the freedom to work when you want, rather than when the engager wants you to, that may be inconsistent with employed earner status. The HMRC CEST tool is deficient on this and other points. I ran through the case of a sole practitioner with a dozen or so clients, ticking all the boxes, and he was deemed by the tool to be within IR35 for every engagement. This was despite his having the freedom to deal with each client as and when he saw fit, and to bill when he agreed a fee, and to subcontract some of his work. The CEST tool does not ask all the relevant questions and should be withdrawn until HMRC can make it work accurately almost all the time.

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to sightblinder
12th Oct 2018 15:53

Quite right. TV presenters with no shows to present do not get paid for being available in case one comes up!

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15th Oct 2018 11:38

I always thought MOO had nothing to do with payment, or has it changed again? I thought it went like this - for there to be no MOO (so not employment), the contract had to have a clause stating that the engager had no obligation to offer work and the contractor had no obligation to accept work offered, so nothing to do with payment.

Having said that, as was mentioned in the article, if Holmes is found be an employee ITV will get the bill.

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12th Oct 2018 12:37

The whole point of taxation is that everyone should contribute equally. When you have different rates for PAYE, NI, dividends, capital gains etc of course you're going to get people trying to bend the system. If all monies received in a tax year are taxed at the same rate (including higher rate, annual allowance etc) then the need for IR35 etc disappears.

Forget MTD let's make tax simple!!

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By dstickl
to rememberscarborough
12th Oct 2018 14:16

The whole point of taxation is that ... the rich pay more, surely ?

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to dstickl
12th Oct 2018 18:45

Sadly, no.

Remember the comment from the IRS fraudster, Leona Helmsley?

"Only the Little People pay taxes!"

So true.

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to rememberscarborough
12th Oct 2018 15:57

Is that the whole point of taxation. Why are there different rates of tax at different earning bands then? Surely everyone should just contribute a flat rate sum if we are all to contribute equally.

The point of taxation is to raise money for the government. The government seeks to do certain things and have certain social and economic effects with that money. One thing we need to take into account is that if being self-employed and mortgaging your house to set something up is taxed the same way as being employed (bearing in mind there are a significant number of self-employed people who are not earning big bucks) why do it? Surely the risk should be reflected in the opportunity to earn?

My company is 38 years old this year. The first five years I earned barely any money. I did not even get to carry forward my unused personal tax allowance. Our tax system should take account of the sacrifice and low earnings period that starting a business involves, along with the risk. We are not fat cats, we are busy bees!.

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By tedbuck
12th Oct 2018 14:41

Well if the rich pay more why should it be at a higher rate? Their income is greater so they pay more. Should tax be used for social engineering? HMG and the PM in particular are making themselves into encouragers of the dependency culture or 'Nanny State' instead of encouraging self help.
They should be encouraging people to save for their latter years not stealing as much as they can from the people who haven't spent it down the pub to pay for those who are happy to sit on their backsides with their hands out.
The mentality of this so-called government is absolutely mind-blowing - if the country wanted a Labour government they would have voted for one.
Absolutely crackers!

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By dstickl
to tedbuck
12th Oct 2018 16:55

... because the UK poor provide the environment for the peaceful activity of the rich to generate the necessary wealth that funds the public services of the cohesive country, on which the rich depend.

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to dstickl
12th Oct 2018 17:17

I've never really thought of the benefits system in that way, but you're correct in what you say.

If we didn't have a benefits system, then the poor would have no choice but to "self-help", as is being suggested. Inevitably, that would take both legal and illegal forms.

If the illegal forms cause such disruption that it interferes with the business of the wealthy, then everyone suffers.

Instead, if the wealthy pay tax to the government, the government can then pass some of this on to the poor to satisfy them (to a degree - I wouldn't for a second suggest benefits money is satisfying), and this should in turn provide the stable country needed for business to flourish.

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12th Oct 2018 15:06

I completely agree. If we got rid of the 40% and 45% rates then the 20% basic rate vs 19% corporation tax rate would make all of these schemes not worth the effort.

The public would most likely spend the extra money which would then expand the privates sector of the economy offsetting the lost tax in to other ways such as via VAT

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12th Oct 2018 15:35

What mystifies me is that presumably, the IR35 rules have not changed for the private sector. We have individuals who have conducted themselves in a consistent manner for years. Yet apparently no-one has advised them they were wrong (if indeed they were).

The imposition of back taxes and penalties on individuals who submitted personal tax returns, corporate tax returns and presumably paid corporation tax on the basis of those figures is going to make every self-employed business owner with a PSC feel really nervous.

If nothing was done secretly or in a hidden way, how can these individuals suddenly owe so much money on the basis they were wrongly categorized for years.

What is going to happen to less profitable PSC Directors who may not have the assets or the funds to handle back tax and penalty demands going back years?

What about start-ups adopting a PSC structure who may have been claiming working family tax credit? There seems to be no provision to go back into closed benefit years and say I did not earn nearly as much as I thought due to back tax demands.

Has HMRC changed its definition of who is covered by IR35? Or are PSC owners being woefully inadequately advised? Or are they being told of the risks and doing it anyway?

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12th Oct 2018 15:36

And here I thought he waas a Sky news presenter or years and did work for the BBC and I have seen him on non TV related work.

Next us accountants will be nailed.

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By mkowl
12th Oct 2018 15:37

The interesting argument was that contractors are paid say double the rate of an employee doing similar work or equivalent skill work I should say. Thus if HMRC succeed on the off payroll work you get the ultimate irony that although they get more PAYE and NI, the tax base point may be 50% to 70%. Now if you do the math, HMRC will probably get less revenue overall. Especially if a fair percentage of contractors decide the UK is no longer a competitive rate of pay and decide to leave the UK.

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By kgreel
to mkowl
12th Oct 2018 22:49

Or like me, close down my PSC, return to permanent employment, take home more money and pay very little tax and NI. Also HMRC lost the VAT on annual invoices exceeding £100,000.

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to mkowl
16th Oct 2018 19:12

Yes, Pimlico plumbers is similar in some ways - HMRC get a lot less money all round if the men are taken on the books of PP at £30k a year salary even once empoyer NI is added on than if you add in the extra tax they pay with higher contractor pay etc

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12th Oct 2018 15:54

Another case of HMRC going after the wrong people with the wrong equipment.

If they actually engaged more of us (the small tax advisers) to formulate more of their policy and legislation there would be a lot less issues.

Instead we have ivory tower advised and consulted by Big4 and others with no real world experience which leads to truly terrible decisions like these and mortgage interest relief restrictions- which we told the Treasury in no uncertain terms what the effect would be but they went ahead anyway (despite Ireland changing back after rents shot up and availability declined sharply).

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12th Oct 2018 16:47

Nice title Tom.

I suspect Holmes will walk from this and HMRC will look foolish because of the profile they have raised.

When will they understand that IR35 is terrible and instead of having chance after chance to get it right not just bury it and be done with it.

The dividend tax will have plugged a big part of the alleged tax gap and is easy to enforce without a court case.

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12th Oct 2018 20:45

Got fierce hungry so he did. When they deny his £'000s of subsistence under IR35 he will pay!

In seriousness - the failure of HMRC to implement what they want re "IR35 situations" is causing so much trouble. So many people (normal, regular workers) are being forced to have a Ltd co in order to get work. They are at risk of getting caned as a result once HMRC eventually sort all this "fake self employment" out.

About 20 years of inaction. If they sort this out at Budget time, that will probably rank as fairly swift action as far as HMRC are concerned.

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By GR
12th Oct 2018 23:51

Eamonn presented GMTV for 12 years (1993 - 2005), Sky News for 11 years (2005 - 2016), and This Morning for 12 years (2006 - 2018). Surely, given the length of the gigs and lack of customers, this is the CV of a disguised employee rather than an genuine independent contractor?

He just doing a normal 'business as usual' job for the ITV and Sky. He is probably more integrated into Sky and ITV than their actual PAYE employees. The producers and directors of his shows will be telling him what to do during the shows, speaking into his ear constantly, and he is unlikely to be able to refuse their directions and orders.

If he is outside of the scope of the intermediaries legislation, then frankly every permanent employee in the UK should quit on Friday and turn up to work the next Monday as a PSC Ltd company and have multiple shareholders (Eamonn's company has 5 shareholders), claim expenses, pay dividends, and register for the profitable flat rate scheme for VAT. PAYE would become a mugs game over night.

Ltd companies should be reserved for those genuinely in business on their own account (i.e. free to substitute, and decide how the work will be done) and doing discrete pieces of work or projects, rather than those having to provide their personal services on a regular continual basis.

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13th Oct 2018 11:50

GR says: "frankly every permanent employee in the UK should quit on Friday and turn up to work the next Monday as a PSC Ltd company and have multiple shareholders" - this was exactly what happened at one large company (I had an idea it was IBM if not I apologise to the company) and is exactly the reason why IR35 came into being in the first place.
My husband works for the BBC as a radio broadcast journalist/presenter on what could be termed a freelance basis - they ring up and ask him whether he can make a particular slot. He can turn it down if he wants or has something (better) to do. However he does have to work at their premises, they way they want with the output as they want (note: same as Holmes). He has a company that could be used but he's taxed under PAYE and they take an amount under AE- they wont permit freelance or pay via a limited company. Its not a zero contract.
One rule for one...
Over the last couple of years I have produced contracts for PSC clients with IR35 in mind. I make sure that the most important points are written into the contract incl the right of substitution.

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By GR
to Jennifer Adams
14th Oct 2018 00:07

Unless the right of substitution is actually exercised in reality, I believe during an enquiry/tribunal the substitution clause would be irrelevant (it would effectively be seen as window dressing). I believe HMRC and the tribunals try to build a hypothetical contract between director and end client based on the reality of the actual working practices and test this against control, substitution, MOO, and business on your own account factors. However, of course, their is no harm putting in an unfettered substitution clause.

Also, I am not sure of the effect of putting an unfettered substitution clause in a public sector contract given the end public sector user would have already made up their mind over what type of person they are looking for, e.g. a servant brought in to follow orders or an expert to help the end user find a solution, and make their IR35 decision based on this. An unfettered substitution clause would unlikely affect the actual working practices and hypothetical contract that are so important to consider when determining status.

I believe the art of IR35 contract writing will die off once the off payroll rules move into the private sectors (probably in April 2019). There will just effectively be 2 standard template contracts being used: 1. outside of IR35 (for the experts finding solutions) and 2. inside of IR35 (for the servants following orders).

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14th Oct 2018 20:21

@Tom - I think you're a shoe in for AWeb article headline/title of the year.

There may be a career in a journalism for you after all!

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15th Oct 2018 18:28

GR:
I do know that a substitution clause would need to be possible in practice. As a qualified company secretary (we are now called 'Corporate Governance Professionals' apparently!) this is something I've discussed with other colleagues who produce such contracts for larger companies and agree that the substitution clause is just one of the more important clauses - the last contract I produced had 18 pages!

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16th Oct 2018 19:16

In some ways IR35 (which I believe only applise to limited companies) is a red herring in these cases i think as if these people were sole traders the same issue would arise - are they employees of the company paying them.

To that extent the law has not really changed and some cawes have always been hard to decide. Eg the BBC pays me as a sole trader about once every 5 years for one off stuff and I am not their employee. The HMRC website tool is not fit for purpose however as it can deem someone who is clearly self employed an employee.

People pay to hear me speak and they often come because I am the person doing it - therefore substituting one of my adult children eg would not be allowed but I am not an employee.

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