What Kaye Adams’ IR35 ruling really means for IT contractors

The courts correct the courts on which of them is right on IR35 – a framework that all medium and large organizations are now supposed to be able to work out on their own, even if the best judges in our country go against each other when it applies, writes Chris Hadrill, a partner in the employment law team at Redmans Solicitors.

I am of course referring to the recent case of HMRC v Atholl House Productions Ltd.

For the uninitiated, a recap or two, or three in fact, is in order.

According to a judgment published this month, the Court of Appeal upheld an appeal by HMRC against an Upper Tribunal ruling that BBC presenter Kaye Adams was not a BBC employee. The CoA found that the initial first level court and after it the higher court had applied the law incorrectly.

What were HMRC’s facts against Atholl House Productions Limited?

Atholl House Productions Ltd is the personal services company of Ms Adams, a Scottish journalist and broadcaster.

HMRC launched an investigation into Atholl House’s tax affairs and concluded that a number of contracts the company had signed with the BBC were covered by IR35. These contracts stipulated that Ms. Adams was do not obliged to work exclusively with the BBC, but she had to fulfill a minimum commitment of 160 programs and a minimum contract fee, as well as the BBC having the right of first appeal on her services (subject to Ms Adams’ other commitments).

HMRC concluded that this arrangement meant Ms Adams should be treated as a BBC employee, rather than an independent contractor. As a result, HMRC argued that the payments Atholl House received from the BBC should be treated as employment income, with tax and National Insurance contributions being payable on these monies.

Atholl House appealed against HMRC’s decision to the Court of First Instance.

The decision of the Court of First Instance

The First Tier Court upheld Atholl House’s appeal, finding Ms Adams was not a BBC employee when the test set out in the Ready Mixed Concrete Ltd. applied case.

Basically, this test states that a person should be considered an employee when:

1) there was mutuality of obligation between the parties;

2) control was sufficient; and

3) if the first two criteria were met, there were no other factors to rule out the conclusion that the person been an employee.

The first tier court found that although there was a reciprocity of obligations between Ms Adams and the BBC under the terms of Atholl House’s contracts with the BBC, there was some control, but not sufficient , from the BBC on Ms Adams to make her an employee. of the organism.

Furthermore, the FTT also found that the terms of the contracts which Atholl House had entered into with the BBC did not accurately reflect the actual agreement between the parties (because, despite the terms of the contracts, the BBC did not in fact the first use of her services and she was also not required to obtain consent to work with third parties). Additionally, under a “hypothetical contract” that included the actual terms, the agreement was do not an employment contract, but a service contract.

HMRC appealed to the Upper Tribunal.

The decision of the higher court

The Upper Tribunal held that the FTT erred in its application of the law by failing to apply the normal rules of contractual interpretation set out in the Autoclenz Ltd Case. The Upper Tribunal, however, held that despite these errors, there was no contract of employment between Ms Adams and the BBC, as she had entered into the hypothetical contract with the BBC under which she would operate her own account.

HMRC, again, appealed to the Court of Appeal.

Third time is a charm? The judgment of the Court of Appeal

HMRC argued that the Upper Tribunal incorrectly applied the Ready-Mixed Concrete Act by applying a “proprietary undertaking” test rather than correctly analyzing the “other factors” which would determine whether whether or not there was an employment contract in place (or not). The Court of Appeal therefore sent the case back to the Upper Tribunal.

What does the CoA decision mean for entrepreneurs?

The key takeaway from this case is its emphasis on the fact that the three parties to the Ready-mixed concrete criterion must be established – for an employment contract to be concluded between one party and another. So the Needs be:

  1. A mutuality of obligations between the parties (i.e. one party pays a salary for services and the other party is required to provide its own services to undertake the services);
  2. Sufficient control by one party over the other (i.e. one party decides how things are done, when they are done, who gets to do the work, etc., with the other party having little or no power); and
  3. No other factor can negate the conclusion that the person was an employee.

Here’s why some contractors’ supporters are happy with the CoA’s decision

For entrepreneurs, this means that even if your client pays you for services (and personally asks you to provide your service) and tightly controls what you do, it does not do not necessarily mean that you are in fact or in law an employee.

An analysis of all other factors in the employment relationship must also be taken into account, before a determination can be accurate. This would normally include:

  • Whether you receive a regular salary (or receive a fixed sum for a particular job),
  • Payment processing (for example if you are on PAYE or submitting invoices for your work),
  • The commitment model, including the regularity of work,
  • What form of contract you sign/sign,
  • Whether you have to wear a uniform and whether or not you can work for other companies (among other factors).

A secondary but much more alarming point to take from this case is that the Employment Status Act is totally confusing – if not confusing, and massively subject to disagreement.

Consider, if experienced lawyers and judges cannot properly apply the relevant tests, what hope do businesses and entrepreneurs have when determining what is the appropriate employment relationship? And of course, that’s been the exact requirement for non-small businesses since the revised no-pay rules came into force last year, in April.

Given the growing prevalence of contractors in the workplace, one could reasonably argue that the intervening government put in place a legislative framework capable of determining the existence and nature of employment relationships. Similarly, legal advice, even brief advice, on a contract should also be obtained before entering into it.


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