HMRC defeats sports presenter in second round of GBP1.7-million IR35 dispute

Chiles worked for the BBC, ITV and other parties through his company Basic Broadcasting Limited, paying the associated reduced rates of income tax and NICs. However, HMRC decided his status for the purposes of the IR35 intermediaries legislation was that of an employee and that the company should account for tax and NICs. Chiles’ appeal was heard in November 2021 at the First-tier Tax Tribunal (FTT), which applied the three-part test set out in the 1968 case of Ready Mixed Concrete to decide whether he was an employee or independent contractor. These three tests are mutuality of obligations, control and a third stage of which the most important is 'being in business on one's own account'. All are subjective to some extent.

The FTT decided that Chiles' company was caught by the first two tests but not by the third, as he had entered into the hypothetical contracts with ITV and others as business that he conducted on his own account. It ruled the hypothetical contracts were therefore contracts for services and not contracts of employment and gave judgment in Chiles' favour.

However, since that ruling, the Upper Tax Tribunal and the England and Wales Court of Appeal have heard other test cases with similar facts, most notably the Atholl House case and the Kickabout case. These have resulted in the EWCA confirming that both tribunals have made errors in these and other cases over the years and clarifying how the three-part test is to be applied. The effect has been to encourage HMRC to appeal its losses at the tribunal stage.

HMRC accordingly challenged the FTT's ruling in Chiles’ favour, arguing that it had misapplied the three-stage test by giving too much emphasis to the 'in business on own account' criterion. The Upper Tax Tribunal has now agreed with this argument, concluding that the lower tribunal was wrong to assume that the answer to the third test depended primarily on whether the hypothetical contracts were entered into in the course of the business that Chiles conducted on his own account. It ruled the FTT had again erred in law in its approach, overturned its decision and remitted the case to the FTT for reconsideration (HMRC v Basic Broadcasting Limited, 2024 UKUT 00165).

'Presented with this moving target, taxpayers and their advisers must nevertheless grapple with whether the legislation applies to any particular engagement, and the courts and tribunals must do the same', commented the Upper Tribunal. 'However, it should not be forgotten that behind every personal service company is a person, and, as we have seen in this case, the uncertainty and financial exposures generated by the difficulty in establishing a clear and stable legal position continue to produce a very real human cost.'

Sources

• Upper Tax Tribunal (PDF)
• Ross Martin
• BAILII
• AccountingWeb