IR35 – BBC presenters affected by compliance issues
The case related to the working arrangements of three BBC presenters – David Eades, Tim Wilcox and Joanna Gosling. All three had effectively been required to operate a personal service company (PSC) to work as presenters for the BBC. A PSC is a company with a sole director, who owns most or all of the shares, and who contracts out his/her services to an end user client. The benefit to the contractor is that they will generally face a lower taxation bill, as the PSC will pay corporation tax rather than income tax. The benefit to the end user is that the contractor will not be an employee, and will therefore not have the associated protections and costs that arise with employees.
In this case, the taxation aspects of the arrangement were challenged by HMRC. This was on the basis of the restrictions to the IR35 legislation that currently apply to the public sector, but which will apply to the private sector from April 2020. The aim behind the legislation is to crack down on a form of perceived tax avoidance whereby individuals seek to avoid paying employee income tax and National Insurance contributions (NICs) by providing their services through an intermediary (usually a PSC) and usually paying themselves in dividends. HMRC was successful in seeking £300,000 in unpaid income tax/national insurance contributions on the basis that these presenters were in fact employees, rather than contractors.
The tribunal stated in its judgement that ‘The BBC were in a unique position and used it to force the presenters into contracting through personal service companies and to accept reductions in pay.’ The decision was made on the casting vote of Judge Harriet Morgan, who held that there was ‘sufficient mutuality and at least a sufficient framework of control to place the assumed relationships between the BBC and the presenters in the employment field’. In this regard, it is important to note that the legal test for IR35 is substantially similar to the test for employment status, i.e. the mutuality of obligations and the level of control will be fundamental. An HMRC spokesperson stated: ‘Employment status is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right’.
Institutions need to be conscious of cases like this, as examples of how HMRC approaches these issues. Given the change in legislation, we would expect universities and colleges to have ended their use of IR35 arrangements and/or changed their approach on the taxation of such arrangements.
It is however difficult to draw definitive conclusions from this case, as the reality is that, as alluded to above, there hasn’t been a consistent approach taken by tribunals. What can be taken from this case is that tribunals (both tax and employment), will generally look past what is stated on the contract, and make decisions based on the actuality of the relationship between the end user and the contractor. In particular, if there is a degree of control from the end user that appears to be more akin to an employer- employee/worker relationship, then tribunals will potentially construe from this that tax is owed under IR35.