Bev Budsworth of The Business Debt Advisor comments, “As a practice that has acted for contractors in the past who have fallen foul of complex tax laws, I keep a keen interest in the latest state of play in the battle ground of IR35. It seems that HMR & C have recently achieved a material victory in the case against a former BBC presenter, Christina Ackroyd”
Ms Ackroyd is now facing a tax bill of £419,000 after a 5 year long battle in which she disputed their claim that she was in fact an employee.
According to Accountancy Age reporter Alia Shoaib (20 February 2018) this is the first IR35 victory for the Revenue in nine years and this is likely to have implications for similar cases as well as future expansion of the legislation.
Ms Ackroyd was a presenter of BBC Look North Programme for over 10 years. She received her earnings into her personal service company, Christa Ackroyd Media Ltd (CAM). Under this arrangement Ms Ackroyd saved paying Tax and NIC. The court agreed with HMR & C that Ms Ackroyd was effectively under a “hypothetical contract” which “would have been a contract of service rather than a contract for services.”
Some of the main indicators that she was an employee rather than self-employed were that the role was continuous and steady (225 days per year in a seven year contract), that the BBC had ultimate say over what services CAM Ltd would provide, and that her contract restricted her from providing services to other companies.
Ackroyd was adamant that she was not responsible for any wrongdoing as she had “signed a BBC freelance contract in good faith.”Judge Jonathan Cannan appeared to accept her position, stating: “We do not criticise Ms Ackroyd for not realising that the IR35 legislation was engaged.”
The BBC said the use of personal service companies was “standard industry practice” at the time.
Is IR35 legislation fit for purpose?
Since April 2017 public authorities must consider whether IR35 applies to a working arrangement with the contractor, not the intermediary company. If it does, payments to the intermediary company must be made after deductions of tax and national insurance as appropriate.
The Revenue are looking to extend these reforms into the private sector which is likely to cause significant damage to the contractor community who do not enjoy the benefits of being an employee including not getting paid during holidays or if they are sick, no maternity or paternity benefits, etc.
According to contractorcalculator.co.uk, the implementation of the reforms has been a shambles, and so has the introduction of HMRC’s Check Employment Status for Tax (CEST) tool. HMRC is in denial, but it needs to do the honourable thing and acknowledge the problem before any more calamitous decisions are made.
IR35 legislation is hugely complex. The risks of getting it wrong are significant. This case took 5 years to get to the final ruling and no doubt the costs of fighting this case have been significant apart from having to pay hundreds of thousands of tax and penalties.