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Three BBC presenters lose IR35 case

A split tax tribunal decision has found the work of BBC presenters Joanna Gosling, David Eades and Tim Willcox fell within IR35, so tax and NIC are due on payments made to them by their personal service companies.

19th Sep 2019
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This is the fifth case involving TV and radio presenters (following Paul Hawksbee, Christa Ackroyd, Lorraine Kelly and Kaye Adams) who were accused of not complying with the IR35 rules in respect of contracts performed through their personal service companies.

It is a significant win for HMRC, but it was hard-won battle. The case took eight years to reach the first tier tribunal (FTT), nine days to be heard in May 2018, and sixteen months for the case report (TC07377) to be published.  Tax consultant David Kirk, who supported the taxpayers throughout that period, said there are lessons for advisers who are dealing with similar IR35 disputes.

Incorporations

Gosling and Willcox were previously engaged by the BBC on a freelance basis for a number of years. Eades was an employee of the BBC until he took voluntary redundancy for personal reasons in 2003.

At varying dates in 2003 and 2004, the presenters were asked by the BBC to set up personal service companies (PSC) in order to offer their services to the BBC. Eades had already built up a portfolio of freelance work outside of the BBC when he was approached by the broadcaster to work on the World programme. 

The FTT found the presenters had been forced to set up PSCs by the BBC, and that the BBC knew this action would mean the tax risk and liability would be transferred to those companies from the corporation. It seems that the presenters were not warned about this. The judge noted the “imbalance of bargaining” power between the BBC and the presenters in this regard.

Contracts

Each PSC entered into a number of contracts with the BBC to provide the services of the presenter. These contracts, performed over periods in the tax years 2006/07 to 2013/14, were the subject of the disputes with HMRC. During those tax years all the presenters did some non-BBC work to varying degrees. In 2014 all three presenters ceased working through their PSCs and became employees of the BBC.  

Advice

HMRC raised determinations for all the tax years in question, but the taxpayers argued that the PAYE determinations for the earlier years (broadly before 2008/09 or 2010/11) were out of time so could not be enforced.

If HMRC could establish the advisers or the presenters were careless and that careless behaviour created a tax underpayment, a six-year time limit would apply to the disputed earlier years rather than four years, and tax would be payable for two extra years.

HMRC argued that the presenters’ advisers did not consider IR35 when dealing with their PSCs and this was a careless approach. The FTT noted that Simmons (Eades’ adviser) took such care as he reasonable could by:

  • undertaking professional training
  • reviewing the relevant documents and discussed the situation with his client
  • consulting text books and similar authorities
  • considering the circumstances including control and mutuality.

Simmons did not contact HMRC’s IR35 contract review service, but the FTT did not think that was relevant. The judge commented: “It is open to professionals to rely on their own assessment of the law rather than HMRC’s view of it.”

The FTT found that all the individuals and advisers concerned acted in good faith in taking a view that IR35 did not apply, and were not careless about their clients’ tax affairs in any way.

Split opinion

Like the Hawksbee case the FTT panel could not agree on the outcome. As Judge Morgan had the casting vote and she decided in favour of HMRC, the case was found on her judgment.

Julia Kermode, FCSA chief executive noted: “Given that the two tribunal judges took opposing views, this case illustrates how unfair it is to expect businesses to make IR35 determinations in the light of off-payroll legislation due in 2020. If judges can't reach an easy conclusion how on earth can firms without access to expertise be able to reach a conclusion?”          

Dave Chaplin of Contractor Calculator also commented: “The presenters were investigated under the private sector IR35 rules (ITEPA 2003, chapter 8).  Had the presenters been investigated under the new off-payroll rules contained in ITEPA 2003, chapter 10, the broadcaster would have had to pick up the extra tax bill they passed onto the presenters, by way of the employers NIC they sought to avoid.”

Replies (17)

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By unearned luck
20th Sep 2019 00:25

The appellants were the presenters' PSCs which you don't name. So, what is the name of this case and where is the link to the decision?

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Replying to unearned luck:
By Rebecca Cave
20th Sep 2019 08:20

The case is: Paya Ltd, Tim Willcox Ltd, Allday Ltd v HMRC. It has not yet been published on the Tribunal website, but it should be there soon, possibly today.

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Replying to Rebecca Cave:
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By Justin Bryant
23rd Sep 2019 14:38

It's not there yet (https://www.bailii.org/uk/cases/UKFTT/TC/2019/). It's the one where the BBC wanted to intervene. See:

https://www.bailii.org/uk/cases/UKFTT/TC/2016/TC05386.html

[Edit] Now here: http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11337/TC0...

Interesting comments re quasi sham at para 427 et seq and that taxpayer's counsel argued that in their favour.

Dissenting view is at para 647. Interesting comments at para 657 re interaction of Reg 80 & s29(1) and at para 658 re staleness applying to determinations. Very useful comments re advisor carelessness at para 677 et seq.

I'm surprised it's a split decision, as these BBC cases are invariably , correctly and obviously within IR35 for the usual reasons and I am always surprised that so-called IR35 experts think otherwise (the reasons they give for their contrary view do not stand up to scrutiny).

From the link below it seems they escaped some years where HMRC were out of time:

https://www.accountancydaily.co/bbc-presenters-lose-ir35-chaos

See paras 23 & 726(3) re that.

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By Julian Stafford
20th Sep 2019 11:18

With respect it is by no means obvious that all cases involving TV presenters (if that is what is meant) come within IR35. These cases are always "fact-heavy"and will depend on the contractual arrangements and how the relationship works in practice. Because there are numerous factors to be weighed, it is likely that one judge will often take a slightly different approach to the other and this is likely to tip the balance in many finely-balanced cases.
The bigger picture is that tax should not be a factor in employment/self-employment and this should be an employee/contractor decision as long as the balance of power is not loaded in favour of the engager. Employer NIC and travel costs are usually the pivotal factors for tax purposes. Until the situation becomes a level playing field in these respects, these cases will keep on coming and the results will be variable for the reasons explained above.

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Replying to Julian Stafford:
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By Justin Bryant
02nd Oct 2019 12:18

I meant just the BBC people were almost always* obviously within IR35 (in my view at least) and so I have never been in the least bit surprised by the outcome of these BBC cases (except here possibly with the dissenting view). There are obviously exceptional cases re other TV presenters, like Lorraine Kelly, but they are very much distinguishable for the exceptional reasons stated in those other cases.

*One exception here where she was not a typical BBC worker as she had significant external freelance work (like LK), so perhaps that's the case in this case re dissenting judge.
https://economia.icaew.com/news/april-2019/broadcaster-kaye-adams-wins-t...

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By ColA
20th Sep 2019 11:59

Tax & NIC would have been due for pay from the PSCs to their directors/presenters in any case.
Is it that payments from the BBC are now trapped by IR35 and attract tax/NIC?

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By ATS_ACCA
20th Sep 2019 12:15

I need to understand this point please:
If the PSCs of these presenters were running a payroll scheme where they deduct and pay the Employer's NIC and Director/Employee's tax and NIC, they shouldn't have come within IR35.
Am I right or not? Please correct me if I' mistaken.

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Replying to ATS_ACCA:
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By johnjenkins
20th Sep 2019 12:38

Right and wrong. If they deducted PAYE off all their receipts then HMRC wouldn't have issued assessments. IR35 determines that all the income falls under PAYE. They look at the case without a Limited Company being there. The concept, is totally wrong.

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Replying to johnjenkins:
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By ATS_ACCA
20th Sep 2019 16:08

Thank you John for your response.
After your explanation, my understanding now is that if these PSCs want to avoid coming within IR35, they should have pay-rolled ALL the income received from BBC without deducting any allowable expenses; as if there is no Ltd company involved.
So, e.g if a PSC receives £8,000 in any month, the director should consider this amount as their salary in that month and pay the Employer's NIC, Employee's NIC and tax on this salary.
Is it so? or am I missing something? Your response is highly appreciated.

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Replying to ATS_ACCA:
By tonyaustin
20th Sep 2019 18:05

if the PSC paid the presenter a salary, it would have had to pay employer's NIC and the presenter pay employee's NIC. That would cancel out any IR35 liability. However, PSC's do not normally pay any salary above the NIC lower limit. The worker is also a shareholder and so takes a dividend with no NIC liability.

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Replying to tonyaustin:
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By ATS_ACCA
21st Sep 2019 13:42

Thank you so much Tony.
It is very crystal clear answer. Highly appreciated.

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Replying to ATS_ACCA:
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By jantill
02nd Oct 2019 15:25

Nearly but not quite.
Under IR35, until recently there was a 5% of turnover deduction for expenses of running the company (not really enough in my opinion) plus a full deduction for any pension payments and any employee expenses (e.g. travel and accommodation). The remainder is classed as the sum of salary plus employers NI. An iterative calculation is then needed to calculate the employers' NI plus salary from which income tax plus employees' NI is deducted. So the contractor is liable for income tax plus a total of 25.8% NI reducing to 15.8% as salary is increased. Any corporation tax paid is deducted from assessments. Interest on monies owed to HMRC is also payable and liable to be substantive.
The new IR35 rules do away with the 5% deduction and who knows how pension is dealt with as there will be no money in the Ltd Co available for this. Nor is there any ability to retain funds to pay liability insurances costs or to enable continuity of salary when no work is available.
Under the latest IR35 rules no expenses are allowable and also, if an umbrella company is used, the contractor is likely to be liable for the Apprenticeship Levy.

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By johnjenkins
20th Sep 2019 12:34

I think the fact that the BBC forced the presenters into a PSC would have been a deciding factor.

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By KIKISROSSIDES
20th Sep 2019 14:06

After so many years a decision has been reached based on a stupid concept, in my opinion, so the question is how much has the Revenue spent and how much will they gain from this decision? Why do I get this feeling they have not made any money out of these cases?

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By DerbyDoesTax
20th Sep 2019 15:49

With it being a Ltd company, any profit after payroll and other tax deductible expenditure would be taxed at corporation rates - will they get that back as an offset?

The wording in their contracts with the BBC must of been very specific. They must of avoided the normal items like ability to work from home/private office. Dictate their own working hours, holiday pay and ability to employ and take on additional work.

The BBC may of benefited from paying no PAYE/NIC contributions, however they also had the negatives of hiring a contractor.

I do feel IR35 and DLA Charge back will discourage our future workforce, who will no doubt have multiple roles, from thinking about forming their own company.

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Replying to DerbyDoesTax:
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By jantill
21st Sep 2019 17:48

"With it being a Ltd company, any profit after payroll and other tax deductible expenditure would be taxed at corporation rates - will they get that back as an offset?"
Yes.

"The BBC may of benefited from paying no PAYE/NIC contributions, however they also had the negatives of hiring a contractor."
The BBC gained from being able to hire from the best in the market whilst having no employer obligations such as final-salary pension, sick pay, HR costs and, of course, redundancy pay.

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By AndrewV12
24th Sep 2019 12:14

Extracts above
'HMRC raised determinations for all the tax years in question, but the taxpayers argued that the PAYE determinations for the earlier years (broadly before 2008/09 or 2010/11) were out of time so could not be enforced.

If HMRC could establish the advisers or the presenters were careless and that careless behaviour created a tax underpayment, a six-year time limit would apply to the disputed earlier years rather than four years, and tax would be payable for two extra years.'

The temptation is to say if you can get away with some tax dodging scheme for a number of years even if you are caught your probably still ahead of the game, but maybe not in this case the amounts involved are on the high side, its that risk / reward balancing act.

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