TT267: IR35 Case

February 28, 2018
Company Law Changes

Christa Ackroyd Vs HMRC – IR35 ruling

We have recently had a line drawn under the Christa Ackroyd v HMRC tax case, a typical IR35 case and the first ruling under this legislation in seven years. In this case, HMRC claimed that the IR35 regulation was engaged and that a BBC presenter should be treated as employed by the BBC, even though she provided her services through a personal service company. The former ‘Look North’ presenter lost her appeal covering tax years 2006/07 to 2012/13 and owed tax amounting to £419,151.00, however, she points out that the amount is lower if the tax already paid by her is taken into account.

Background:

Ms Ackroyd provided her services to the BBC through her personal service company Crista Ackroyd Media Limited (CAM Limited). Ms Ackroyd noted in her statement that her decision to operate via a limited company was upon the insistence of the BBC and the terms were reviewed by her professional advisors. The use of personal service companies has been a widespread practice across the industry as it provided flexibility for both the individuals and the organisation entering into such arrangement. However, an independent review conducted in 2012 suggested that the BBC had offered presenters the option of signing staff contracts or using personal service companies, but had not advocated one or the other. The First-Tier Tribunal (FTT) has subsequently found that IR35 regulation is engaged and the BBC presenter should be treated as an employee of the BBC and CAM Limited should account for income tax and national insurance.

The judgement:

The FTT summarised the issue as follows:

“If the services provided by Ms Ackroyd were provided under a contract directly between the BBC and Ms Ackroyd, would Ms Ackroyd be regarded for income tax purposes as an employee of the BBC?”

Hence, the terms of the contract were considered against a ‘hypothetical contract’ to check if the facts depicted for it to be an employment arrangement or not:

1. Ms Ackroyd was required to work for the BBC for at least 225 days per year, and the BBC was required to pay the fees set out in the contract monthly.
2. Ms Ackroyd accepted that the BBC ultimately had the right to specify the services to be provided by CAM Limited.
3. The BBC had control over the content owing to its editorial responsibility.
4. Ms Ackroyd had no right of substitution, in fact this was specifically excluded.
5. Ms Ackroyd was restricted from providing her services to other organisations, without express consent from the BBC.
6. Finally, the existence of a seven-year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a high degree of continuity and represented a highly stable and regular arrangement.

Based on the above facts the FTT concluded that Ms Ackroyd had a contract of service with the BBC and should be treated as an employee. According to IR35 regulations, CAM Limited owed the tax and national insurance on her deemed employment.
Scope

While Ms Ackroyd believes that she has been made a ‘scapegoat’, the decision will nevertheless be seen as a setback for around 100 such cases that are currently under consideration and will require a seismic change to what represents an industry-wide issue. The case would also effect similar such arrangements, where contractors could easily find themselves within the scope of IR35 regulations.

There are numerous commercially legitimate reasons for providing your services through a personal service company, however the terms of such contracts should always be considered carefully. If you wish for any such arrangement to be reviewed, please contact your Barnes Roffe partner.

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