Kaye Adams: IR35 rules outfox Upper Tribunal

In HMRC v Atholl House Productions Limited [2022] EWCA Civ 501, presenter Kaye Adam's IR35 case has been remitted back to Upper Tribunal (UT) by Court of Appeal (CoA). The CoA found that the First Tier Tribunal (FTT) and UT had both erred in considering relevant case law and the terms of the contractual relationship between Ms Adams and the BBC.

Kaye Adams hosted a radio show for the BBC where her services were provided through her Personal Service Company, an intermediary that contracted with the BBC.

Following a review of many of the BBC's 'top talent', HMRC decided that her contract was caught by IR35 on the basis that if the presenter had provided her services directly to the BBC, she would have been classed as an employee.

Ms Adams appealed against the decision of HMRC and the FTT found in her favour. 

It is accepted that when applying the provisions of IR35 that there are three steps to consider:

1. What are the terms of the actual contract between the intermediary and the End-Client? The FTT looked to the decision in Autoclenz v Belcher [2011] UKSC 41 (Autoclenz) for how to interpret the contract.
2. What would be the terms of the hypothetical contract if the individual were to contract with the End-Client directly?
3. Would the hypothetical contract be one of employment? In ascertaining this, the three tests as set out in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 (Ready Mixed Concrete) as per McKenna J, were used.

The FTT found that:

• The actual terms of the contract came from both the written agreement and the conduct of the parties.
• The terms of the actual contract would be the same as the hypothetical contract.
• The hypothetical contract was not an employment contract under the Ready Mixed Concrete tests, as Ms Adams entered into the contract as a business on her own account. 

HMRC appealed the FTT's decision on the basis that it had erred in law and in consideration of irrelevant facts when applying the Autoclenz and the three tests of Ready Mixed Concrete.

The UT held that:

• The FTT had indeed erred in law when applying Autoclenz to the construction of the actual contract. The Autoclenz case sets out the principles of contractual interpretation and the FTT had departed from those principles without a strong enough reason to do.
• For the purposes of the actual contract, the terms in the written contract were the only ones to be considered. 
• The hypothetical contract could, however, carry additional terms not found in the actual contract. Here, the conduct of the parties was relevant.

The UT constructed what it believed the hypothetical contract would look like and it was to this that the three Ready Mixed Contract tests were applied. HMRC's remaining arguments around the FTT's flawed reasoning were no longer valid as the UT had replaced these with their own.

The UT dismissed HMRC’s appeal by applying the three tests as follows:

• Mutuality of obligation; the terms of the contract clearly showed that this existed.
• Degree of control; the FTT did not conclude here but on the facts, the UT found that the BBC did have sufficient control over 'when', 'where' and even 'how' the contract was carried out.
• With mutuality of obligation and a sufficient degree of control, the contract is one of employment. The third test is to consider whether there are enough relevant considerations to displace that assumption i.e. was the individual carrying on a business on their own account.
• Business on own account; the UT accepted the FTT's findings that Ms Adams did carry on a business on her own account and that the activities of that business and the BBC contract were similar. In order to displace the assumption of employment, the UT considered:
  • Whether the activities were of the same nature and kind. The UT held that they were.
  • Whether there were relevant differences between the two. The UT held that there were not. HMRC had already accepted that the contract in question was not employment for two prior tax years and the UT held there were no relevant differences between the two periods of time. Ms Adams was carrying on a business on her own account when she took on the BBC contract.
• As a result, the engagement was part of the existing sole trade and was not a contract of employment. IR35 did not apply.

HMRC appealed to the CoA who remitted the case back to the UT to consider correcting the errors made by the FTT and UT respectively:

The CoA found that the UT’s approach was flawed. It was wrong to consider the similarities between the different activities undertaken to determine whether all the activities (for the BBC and others) formed part of a single sole trade business as:

• Case law recognised that an individual can perform some activities under a contract of employment and other activities separately in a sole trade capacity.
• The relevant factor is the contract in question, that contracts for other engagements are akin to self employment should not impact the analysis of the contract being considered.
• The UT did not consider the terms of the hypothetical contract.
• The contract needed to be viewed in respect of its terms and events in the surrounding tax years should not overly impact the analysis.

This was sufficient to set aside the UT decision to interfere with the decision of the FTT.  The CoA went on to consider the FTT decision was also flawed.

• The FTT held that applying the decision of Autoclenz meant that it could remove written contractual terms with what was considered the true agreement between the parties. This removed ‘control’ provisions from the analysis.
• As the contracts were then read without those ‘control’ provisions, the FTT found they were not contracts of employment.
• The CoA viewed this as incorrect as:
  • The non-tax case of Uber BV v Aslam [2021] UKSC5 built on the decision of Autoclenz and stated the primary question was did the relevant legislation (rather than the specific contract) make Ms Adams’ fall into the definition of 'worker'.
  • The FTT was too influenced that the ‘control’ clauses had not been utilised, which was as a result of there being no disagreement between the parties.
  • That a contractual right was not utilised did not mean it couldn’t have been.
  • Applying Autoclenz to remove these provisions from consideration was not a legitimate approach to deciding the terms of the hypothetical contract.

The case now get remitted back to the UT.

Useful guides on this topic

BBC presenter not an IR35 employee
In HMRC v Atholl House Productions Limited [2021] UKUT 0037, the Upper Tribunal (UT) upheld the First Tier Tribunal's (FTT) decision that the TV and radio presenter, Kaye Adams, was an independent contractor and not caught by IR35.

IR35: Loose Women presenter not an employee
This is the FTT case summary.

IR35: Off-Payroll Working
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?

Employment Status & detailed checklis
An employer (including an Employment Agency) must assess any worker's employment status so that they can fulfil their obligations under employment and tax law.

External link

HMRC v Atholl House Productions Limited [2022] EWCA Civ 501