With the First tier Tax tribunal having found Atholl House and Kaye Adams to be outside IR35 in 20191, they were again confirmed as being outside ir35 last week by the Upper Tier Tribunal (UTT).
The full decision gives an interesting rationale for its position, which has relevance for the way that interims – and all freelancers – should be looking at their business delivery and consider their contract reviews when dealing with larger clients.
This case is one of a number that HMRC is pursuing against broadcasters who operate in business on their own account. The ruling provides HMRC with issues that could undermine their current approach to determining who is caught by the off payroll regulations: directly and through the Check Employment for Tax (CEST) tool.
Interestingly, it was found that Adams was ‘inside’ IR35 in terms of:
- She was providing a personal service
- There were mutual obligations in the contract that satisfied the (Tribunal’s) test
- There was sufficient framework of control by the engager.
However, the UTT overrode these by finding that Adams was seen to be clearly in business on her own account.
In the 2019 Tribunal, Lom,1 writing about the findings, makes the point:
“While the tribunal also considered the Ready Mixed Concrete test, the focus on this more impressionistic approach, coupled with the Albatel decision, where the tribunal was heavily influenced by Kelly’s ‘star status’ when finding that IR35 did not apply, may provide taxpayers with increased scope to argue for a presumption that individuals who possess unique skill sets and who have historically been self-employed should continue to be regarded in that way in respect of new engagements in the same sphere.” (emphasis mine)
Ms. Adams is known for her range of work with media companies including BBC, ITV and Sky News, as well as being a journalist for various newspapers and magazines. In the UTT decision, Mr Justice Marcus Smith and Judge Jonathan Richards stated that: “the prima facie conclusion reached at the end of Stage 2 is to be displaced because, when entering into the hypothetical contracts here at issue, Ms Adams would have been entering into business on her own account.”
This reinforcement of comments made by the First Tier Tribunal serves to emphasise the need to consider in the round whether the individual demonstrates through their several business dealings that they are indeed in business on their own account.
However, HMRC successfully argued one of its grounds of appeal concerning the misapplication of the Supreme Court’s decision in Autoclenz v Belcher Employment Tribunal case. BUT, this was found by the UTT to be outside of scope in this case as it neither involved the creation of a ‘hypothetical contract’ within the meaning of the intermediaries legislation, nor did ‘Autoclenz’ apply to the regulations itself.
The UTT was significantly exercised in determining how to distinguish between the way that the contract is written and the way that it operates in practice. This comparison is the basis for determining the ‘hypothetical contract’ – and it is this on which rests a view of the tax status being taken. The UTT considered how important the original contract wording was in defining how the contract worked in practice. It is therefore relevant to keep in mind that it was considered important to recognise the judge pointing to the “circumstances” of the arrangements.
For interims, the net effect of this decision is to keep the original contract and the practical working methodology aligned – assuming the contract is based on working outside IR35.
1: First-tier Tribunal decision in Atholl House Productions Ltd v HMRC  UKFTT 242 (TC)