The recent decisions of Paya Limited and others  UKFTT 583 and Christa Ackroyd  UKUT 0326 have shed further light on the application of the IR35 legislation.
IR35 was broadly introduced to prevent employees from taking advantage of the income tax and national insurance benefits designed for self-employed consultants. It applies when an individual provides services to a client through a third party (such as a personal service company), but the individual would be regarded as an employee if the services were provided directly. Where applicable, IR35 would treat the service fee as income, subject to income tax and NICs under the PAYE system.
In Paya, BBC presenters acted under a number of contracts, under which the BBC was obliged to provide work on a minimum number of days, which the presenters were obliged to undertake. If not, the BBC would nevertheless pay the contract fee.
HMRC therefore determined that the arrangement was an employment, as the 'mutuality of obligation' test was met. The tribunal agreed, finding that it would also have been treated as an employment if the contracts gave the BBC the ability to control the way in which the services were provided. The absence of the provision of benefits was not considered to be a material indication of non-employment.
Overall, the presenters were treated as employed for tax purposes, but not employed for employment rights or benefits purposes.
In the appealed decision of the Christa Ackroyd case, the overarching conclusion was that "the facts overwhelmingly pointed towards IR35 being engaged, given the considerable level of control that the BBC exerted over Ms Ackroyd." As an Upper Tribunal finding, this now constitutes binding precedent on taxpayers and HMRC.
As reported in the last issue of Tax Aware, IR35 will be extended to the private sector from April 2020 and the compliance burden will lie with the end-user. Such businesses and contractors should use the time available to review contracts and consider the tax consequences. Indeed, had these cases been decided under the new rules, it would be the employer facing a tax bill, not the worker.