IR35: The tale of Kaye Adams and HMRC

There are only two inevitabilities in life: Death and taxes. However, given HMRC recent form on taking tax cases to tribunal, I think we can add HMRC losing IR35 tax cases to that list.

Overview

Ms Kaye Adams (KA) provided her services to the BBC via an intermediary (Atholl House Productions Limited). HMRC contended that the IR35 legislation applied to the engagement for the 2013/14 to the 2016/17 tax years. Upon appeal, HMRC conceded the 2013/14 and 2014/15 tax years but not the remaining tax years. During the two tax years of assessment in question, KA provided her services to the BBC under two different annual agreements.

KA presented a programme on BBC Radio Scotland called “The Kaye Adams Programme”. The show ran for three hours on each weekday morning, between 9 am and noon.

In addition to her work with the BBC, KA undertook a number of other engagements for a number of different media organisations and businesses (including the ITV on “Loose Women”).

Given that JA personally provided her services to the BBC, the key question is whether the underlying engagement would be one of employment.

Specific facts of the case

Factors of the written agreement

• KA was required to provide a minimum commitment of 160 programmes. In return, KA would receive a fixed fee and an additional day rate where the minimum commitment was exceeded. However, should KA fail to provide her services for any reason, her fee would be proportionally reduced;
• There were terms within the contract requiring KA to comply with the BBC’s editorial guidelines and attend certain training sessions. In addition, the contract required KA to act in a manner which would not bring the BBC into “disrepute”
• A term within the contract stated she should not be considered an employee of the BBC;
• Whilst the agreement stated that KA’s services were not provided exclusively to the BBC, the BBC would have first call on KA’s services. The BBC was also required to consent to KA’s appearance on any third-party production;
• KA was required to be contactable and available to provide her services at any point during a “call day”;
• The BBC had the right to terminate the agreement by giving 14 days notice if a material breach had been committed;
• The agreement made clear that the BBC had editorial control of the programmes’ contents and not obliged to call on the services of KA or use her contributions. However, if it chose to utilise KA’s services, there would still be a requirement to pay the minimum fee; and
• There were limited circumstances whereby a substitute could be provided.

Facts drawn out from the witness statements

• Where KA had not provided her services to the BBC, the contract had been enforced and her fee had been proportionately reduced;
• Whilst on air, KA would have ultimate control over the callers she would take/direction the show would follow, albeit that the production team would make suggestions.
• She had made a tweet which was deemed “offensive” by the BBC and had been suspended for three weeks. During this period, she had not been paid for the programmes she had missed;
• Despite the contractual clauses, the BBC had not placed any restrictions on her working for others and it appears they actively encouraged and facilitated her to undertake other opportunities;
• KA undertook promotional activities for the BBC but it was argued that this was to increase viewership (as opposed to being instructed by the BBC to do so); and
• KA was treated differently compared to a normal BBC employee. For example, KA was not entitled to sick pay or maternity leave.

Tribunal findings

Material terms in the deemed agreement between the BBC and KA

• The tribunal found that the contractual right for the BBC to have “first call” over KA’s services and that KA was required to obtain the BBC’s permission prior to working for another entity did not accurately reflect the engagement realities. As such, the BBC did not control the content of KA’s other engagements and she was free to enter into other engagements as she wished.
• Whilst there was a contractual right for a substitute to be provided in exceptional circumstances, in reality the BBC chose an alternative presenter and paid for the individual. As such, a right of substitution did not exist.
• Whilst disagreements between KA and the BBC were resolved collaboratively, the BBC had a contractual right to exert control over KA.
• The tribunal agreed that KA was treated differently to BBC employees (e.g. no entitlement to sick pay)
• A fee would have been paid to KA where the BBC did not call on her to present a programme that she was willing and able to present.

Overview of the tribunal’s findings

The tribunal was of the view that KA’s engagement was similar to that of Mr Lorimer (notorious from the Hall vs Lorimer tax case). Whilst the remuneration KA received from the BBC was over 50% of her total income, the tribunal viewed that the other engagements (particularly that of the “Loose women” programme) could not be deemed insignificant for her income or reputation.

Furthermore, whilst the tribunal took the view that there was mutuality of obligation as KA was entitled to a minimum fee and in practice, there was no right of substitution.

With regards to her radio programme, there was a degree of control exerted as, whilst they could not physically prevent KA from acting in a manner which it disproved, the BBC could sanction her retrospectively. However, the BBC did not significantly control Ms Adam’s other engagements and in fact facilitated those other arrangements on certain occasions. It was considered natural that an organization would seek to ensure it was not discredited by a contractor, therefore any terms to this effect were considered neutral by the tribunal

As such, whilst there was an element of control exerted by the BBC over KA’s programme and her other engagements, it was not considered to be absolute.

The absence of holiday, sick and maternity pay was also considered significant by the tribunal (see below for further commentary on this point).

Based on the above, the tribunal deemed that KA’s engagement with the BBC was akin to a self-employed relationship.

Other areas of interest

How much weight should be given to the terms of a written agreement?

Often, as tax practitioners, we ask ourselves the question: Is having a certain clause (e.g. the right of substitution) within a written agreement, albeit that clause has not been exercised, sufficient to say that this clause will form part of the deemed employment contract.

This question was explored in detail in this tax case. The tribunal took the view that, where a clause is contained within a contract, it is necessary to consider all evidence to determine whether that right is in fact a true term of the actual agreement. The circumstances where one can disregard the right are much broader than simply cases of sham or unrealistic possibilities. However, the tribunal also makes clear that a right should not be ignored even if in practice it has not been exercised.

Statutory payments

An area where this case differed to Ackroyd was on the issue of statutory payments (e.g. sick pay, holiday pay etc.).

HMRC contended that, as KA was an employee of her Personal Service Company, she could be entitled to statutory rights through her Company. However, Judge Beare stated that this argument was circular, as these rights would only be held where the deemed contract was one of employment therefore these rights cannot simply be assumed.

From his perspective, there was no reason for an actual agreement to exclude the provision of such benefits, therefore the absence of the provision of these benefits within an agreement is indicative of a self-employed relationship.

The importance of reviewing cases on an individual basis

It is worth noting that the BBC has previously been involved in an IR35 tribunal case in relation to Ms Ackroyd, which was deemed to be an employment relationship.

The tribunal found that the facts of the case were significantly different between KA’s case and Ms Ackroyd. In particular, the quantum of non-BBC income, the length of the engagement with the BBC, the control exerted by the BBC etc.

Therefore, whilst the roles undertaken were similar but the fact pattern was substantially different, this produced a different outcome.

This is of significant importance given the upcoming IR35 changes to the private sector. In the public sector, we have seen certain employers assess the IR35 on a "per role" basis. However, given that in practice the nature of roles can differ, this can result in incorrect assessments being made. Employers should therefore have a system for reviewing each engagement individually to ensure correct assessments are made.