In recent years, HMRC has increasingly targeted the 'disguised employment' of self-employed people. Its clampdown is targeted at individuals supplying their services to clients via their own limited companies on terms that would constitute employment had they been engaged directly by the client. The relevant tax rules contained in the 'intermediaries' legislation', commonly known as IR35, have been controversial since their introduction in 2000. Where they apply, any fees paid to such companies are treated as the individual's direct earnings and, consequently, the intermediary company is required to treat the fees received as income of the individual and operate PAYE to collect the applicable income tax and national insurance contributions.
The recent clampdown has been two-pronged:
First, the rules were ramped up last year for public sector workers by way of a legislative change. With effect from April 2017, this change shifted the responsibility for determining whether an individual is an employee or a genuine contractor from the individual to the public sector body itself or the recruitment agency used by that body. A public body is broadly defined for these purposes and includes local authorities, the NHS, educational institutions, government departments and any entity subject to the Freedom of Information Act, which would include the BBC and Channel 4. The burden for accounting for the resultant PAYE has also been shifted to the public sector body or associated recruitment agency. There has been speculation amongst those affected that this shift in culpability may be extended to the private sector in the foreseeable future.
Second, there has been an increased appetite on the part of HMRC to pursue those perceived to be in 'disguised employment' through the courts. This is exemplified by the first IR35 victory for HMRC in nine years in the case of Christa Ackroyd (Christa Ackroyd Media Limited v HMRC [2018] TC 06334), the first of a number of appeals by BBC presenters. In this case, the First Tier Tribunal determined that Christa Ackroyd, a television presenter of BBC1's "Look North", engaged by the BBC via her personal service company, was caught by IR35. The Tribunal considered two conditions, “mutuality of obligation” and control, which, if both met, would make the hypothetical contract one of employment unless other provisions of the contract are inconsistent with employment. It held that; (i) there was a clear mutuality of obligation in that Christa Ackroyd had to work for the for 225 days per annum for which time the BBC had to pay her a fee; and (ii) the BBC did control Christa Ackroyd under the service contract because she had to follow their editorial guidelines, whilst the BBC was not obliged to act on Christa Ackroyd's suggestions (albeit that it generally did so). Consequently, it was held that the fees paid to Christa Ackroyd's company were in fact Christa's direct earnings and therefore should be subject to PAYE (Note: the periods in question were before April 2017 and the introduction of the legislative change set out above).
It is likely that the above will have significant implications for freelancers (both in the public sector and beyond) and recruitment agencies. Not only is it likely to impact subsequent cases, it may lead to a further expansion of the legislation and culpability in the future.