Two recent decisions of the First-tier Tax tribunal (Basic Broadcasting Limited and Little Piece of Paradise Limited) have confirmed what has long been recognised: when it comes to off-payroll working (IR35) disputes, they can take a long time to conclude and can conclude inconsistently.
Being in business "on your own account"
In Basic Broadcasting Limited, the television presenter, Adrian Chiles’, engagements with the BBC and ITV were closely examined. HMRC argued that he should be taxed as an employee, given the nature of the work.
As ever, the starting point was the test as set out in Ready Mixed Concrete, which consists of the following limbs:
- Agreement for ‘employee’ to provide personal service to the ‘employer’ in return for wage or remuneration (“Mutuality of Obligation”);
- Degree of control over the ‘employee’ by the ‘employer’; and
- Consideration of all other facts including any contract.
The taxpayer’s appeal was successful under the final limb, namely that he was in business on his own account. In the taxpayer’s favour, he had signed up with an agent who would find him wider work and promotion, he worked with 25 other clients, and he wrote for a number of newspapers.
On the basis of the above, some seven years after HMRC’s investigation started, the Tribunal found in the taxpayer’s favour, meaning Chiles did not owe c. £1.5million of underpaid income tax and NICs.
In Little Piece of Paradise Limited, engagements between sports presenter, Dave Clark, and Sky were closely examined. In this case, the employer's degree of control was so overwhelming that the taxpayer was unsuccessful in his appeal. There was mutuality of obligation present (the taxpayer was paid whether or not he worked), a fettered right of substitution and a restriction on presenting for other broadcasters.
Most importantly, it could not be proved that the taxpayer was ‘in business on his own account’. Specifically it was found that, “Mr Clark’s [financial] risk exposure [was not] on a par with one who was in business on his own account”. Further, "Clark was dependent upon Sky as the paymaster for the financial exploitation of his talents.” On that basis, the contract between the parties was deemed to be one of employment for the purposes of IR35, meaning c.£300k of income tax and NICs was due.
The decisions show that significant evidence is required to demonstrate "businesses on their own account".