The news that former BBC presenter, Christa Ackroyd, lost the first IR35 case for seven years last week will be a cause for concern to contractors who have declared themselves outside this complex tax legislation.
The subsequent revelation that Ms Ackroyd now finds herself in the unenviable position of owing HMRC an alarming £420,000 in missing tax payments will hardly settle the nerves of independent workers either.
Furthermore, many industry experts believe Ms Ackroyd’s case might only be the tip of the iceberg. Certainly, HMRC wanted to make a very public example of the former Look North presenter, who could be the first of many contractors finding their IR35 status scrutinised. If this case was meant to send a warning shot to the UK’s 2 million independent workers, there’s no questioning whether or not it had the desired effect.
In Ms Ackroyd’s case, the Judge, Jonathan Cannon, gave his verdict following a thorough examination into the working arrangement, including whether Control, Mutuality of Obligation and finally, Substitution were each present.
On the face of it and prior to the presenter starting her engagement with The BBC through her own PSC, each of these might have seemed clear. That said, given the resulting IR35 case and colossal fine, it could be argued that Ms Ackroyd was not in a position to judge whether her contract fell inside or outside IR35.
Like many IR35 cases prior to this, and no doubt many to follow, Control was pivotal in the result. Despite Ms Ackroyd having an element of Control over her working arrangement, ultimately The BBC held ‘editorial responsibility’, meaning that it was the organisation and not the worker that controlled the project.
In addition to this, and strengthening HMRC’s argument, Ms Ackroyd did not work on any other projects simultaneously and would have needed to ask The BBC’s permission to take on separate work. The report deemed this ‘a clear restriction on what Ms Ackroyd could do in relation to other activities, whether or not she wanted to engage in such activities.’
Unsurprisingly, the Judge was inclined to agree with HMRC that this resembled services provided by an employee, rather than a company.
In the Judge’s opinion, Mutuality of Obligation (MOO) was also present – another indication that Ms Ackroyd’s contract should perhaps fall under IR35.
Ms Ackroyd’s fixed seven-year contract with The BBC suggested that MOO existed, given it contained a clause stating she would receive payment regardless of whether she worked or not. This, combined with The BBC’s ‘first call’ on Ms Ackroyd’s services, which gave them the right to engage her ‘on any particular day subject to reasonable notice’ was another indicator that the working relationship belonged inside IR35.
To further strengthen HMRC’s case, Clause 18 of Ms Ackroyd’s contract ‘prohibited CAM Ltd from using a substitute for Ms Ackroyd’. The Judge did recognise that Substitution would be slightly unusual given Ms Ackroyd’s role as a presenter, but it’s doubtful it helped her position.
In addition to the factors above, the report also states, ‘We do not consider that Ms Ackroyd could fairly be described as being in business on her own account’. Many contractors will know that without typical business characteristics – ranging from premises to company stationary and email addresses – they run the risk of being caught by IR35.
The report also made the important point that ‘different factors will have different significance and weight in each case’, and ‘it is not appropriate to adopt a mechanistic or ‘check list’ approach’. It could be argued this is in reference to the shortcomings of HMRC’s CEST Tool. It should also be noted that the test of MOO has been famously omitted from the CEST Tool despite its ongoing significance in case law, including that of CAM Ltd.
But what can we take away from this? Clearly the ambiguity of the IR35 legislation makes it difficult for contractors (and public sector engagers) to make accurate status decisions. And whilst Ms Ackroyd is not a typical representation of your average PSC contractor, her resulting IR35 liability is a prime example of the potential cost of ill-informed determinations.
Christa Ackroyd Media (CAM) Ltd v Customs & Revenue also emphasises that the Government, with HMRC in tow, are fully focused on stamping out what they suspect to be wide spread tax evasion from the self-employed.
However, instead of striking further fear into contractors operating outside IR35, Ms Ackroyd’s case outlines how important it is that contractors have a deeper understanding of each contract they are about to begin.
Interestingly, Qdos Contractor research from May 2017 revealed that as many as 40% of contractors did not have each new contract reviewed. However, there’s every chance that ongoing IR35 uncertainty will prompt independent workers to take the initiative sooner rather than later.
That 65% of contractors did not have their working practices reviewed when asked last year is a surprise as much it is a worry. After all, HMRC often scrutinises actual working practices in an IR35 enquiry because it tends to reflect the reality of a working arrangement compared to the contract initially agreed.
As Alison Parfitt, Author of The Happy Contractor, explains, Ms Ackroyd’s case reflects the need for independent workers to protect themselves from IR35.
“Recently, perhaps more than ever, IR35 is causing a lot of fear among contractors. And it is a very serious subject, but there are simple steps you can take to protect yourself.”
“Have each contract reviewed by a specialist to make sure your working practices align and take out tax investigation insurance. This way, you know you’re protected and can get on with your life.”
Nobody is arguing whether or not contractors take the threat of IR35 seriously, because it is clearly independent workers’ number one concern – yet another reason why IR35 protection is quickly becoming a vital part of the contractor’s toolkit.
Qdos are encouraging contractors to check their IR35 risk with an IR35 calculation completed by one of Qdos Contractor’s IR35 consultants. It is a free, no obligation service – click here for more information.