HMRC homes in on IR35

20 February 2018

There has been much press coverage regarding HMRC’s recent win against the former BBC Look North journalist and presenter Christa Ackroyd under legislation that is referred to as IR35.

IR35 has its background as far back as March 1999 and it was introduced with effect from 6 April 2000 as a means by which HMRC could attack the disguising of employment through an individual providing services typically through a limited company under their ownership rather than working directly, where the direct relationship would have been that of employer and employee.

Whilst IR35 has been a weapon in HMRC’s armoury for almost 18 years, HMRC were initially slow to act. A provision that was supposed to raise £220m each year was reported only to have raised £9.2m in the years 2002-03 to 2007-08! By 2010-11 the number of active cases had dropped to as few as 23.

The recent Christa Ackroyd case and last autumn’s Big Bad Wolff case, involving the personal service company owned by actor Robert Glenister shows a much more stringent approach by HMRC which gives reason to look again at cases in which IR35 might be applicable. 

The recent Ackroyd case shows the importance of looking at matters in the round: contracts should reflect the actual working arrangements in place between all the parties involved and then consider whether employment status would arise if the individual was engaged directly. This is made more complex because there is no single definitive test of when employment status in fact arises.

In Ms Ackroyd’s case, significant weight was given to the editorial control retained by the BBC and the impact of this control over Ms Ackroyd’s actions. Further, Ms Ackroyd was restricted from working for anyone other than the BBC without the latter’s agreement. The result was that Ms Ackroyd’s income from the BBC typically exceeded 96% of the total income each year. The analysis regarding what her status would be was not helped by the fact that her contracts were long-term in nature – her last contract covered seven years.

It is reported that even though it was accepted that Ms Ackroyd had not acted dishonestly, the total tax cost is likely to be over £400,000 in tax and National Insurance.

The case heard against Ms Ackroyd’s company has been heard at the First Tier tribunal. As such, the case does not create a precedent as such and may well be appealed. It is known however, that HMRC is undertaking numerous similar cases involving PSCs and the BBC and no doubt, HMRC will be encouraged by what is at least an initial victory and indeed there are many active cases involving actors.

In many sectors of the economy, the use of PSCs has been a standard and indeed in many cases, use of PSCs have, if anything, grown since the introduction of IR35. Not least perhaps because of real or perceived HMRC inaction.  However, it is clear the whole area of off-payroll working is now very much a hot topic for HMRC. Workers operating through or considering using PSCs must be advised to look carefully at the relationship that they have through their PSC for the organisation for which they work. 

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