HMRC has won a recent case in the First-tier Tribunal against the TV reporter, Christa Ackroyd, who was engaged by the BBC through a personal service company (PSC) to anchor the regional news programme "Look North". The judge held that she should be taxed as an employee under the intermediaries legislation (aka IR35) and not as a self-employed contractor.
The IR35 legislation was introduced "to ensure that individuals who ought to pay tax and NICs as employees cannot, by the assumption of a corporate structure, reduce and defer the liabilities imposed on employees by the UK's system of personal taxation." Those providing their services through a PSC commonly draw only a small salary from that company, with the remainder of the sums paid to the PSC taken by the individual as dividends taxed at a lower rate and not subject to NICs. The increasing use of PSCs has been a huge issue for HMRC in recent years and there are a number of other BBC presenters facing enquiries, although this was not a lead case as such.
The issue to be determined was whether, if the services provided by Ms Ackroyd were provided under a contract directly between the BBC and Ms Ackroyd, she would be regarded for income tax purposes as an employee of the BBC.
Control
The crux of Ms Ackroyd's argument was that she was could not be deemed an employee because she was not subject to the BBC's control in performing her role.
The Tribunal accepted that Ms Ackroyd had strong editorial influence over both the content and style of "Look North" and a high degree of autonomy in carrying out her work, identifying the stories she wished to follow and writing her own scripts. However, the judge remarked that the key question is not whether in practice the worker has actual day to day control over his or her own work, but whether there is, to a sufficient degree, a contractual right of control, taking into account the practical realities of the relevant industry and the aspects of the performance of work which it is possible to control.
It is particularly likely to be the case that a senior person with significant skills and experience will be given a wide degree of latitude in the organisation of their work, but it seems this is not enough to displace a finding of employment if the client has a legal power to control the work and/or maintains a level of accountability and supervision by a superior. The BBC retained ultimate authority over Ms Ackroyd's work in that it required its presenters to comply with its Editorial Guidelines, provided editorial oversight and had the right to overrule Ms Ackroyd's decisions even if, in practice, this was never considered necessary.
It is clear that roles requiring professional judgement to be exercised and a measure of independence in carrying out the services cannot be assumed to fall outside the IR35 rules and the ultimate power of control of the worker's output will need to be assessed carefully in every case. It is, however, hard to see in what circumstances an individual would be a contractor under this test where a client is reluctant to cede control over the end product or service. HMRC will be very pleased that the "value judgement" fell in their favour in this case, as it will now be hard for an individual to demonstrate sufficient control consistent with not being a deemed employee in similar situations.
Restrictions on other activities
Although given less focus in the judgment, the length of Ms Ackroyd's engagement will have been a key factor in HMRC deciding to take this case.
Ms Ackroyd worked almost exclusively for the BBC for 12 years on five and seven year fixed contracts. The Tribunal took little notice of her ability to take on other jobs if she wished, because in reality she worked full time for the BBC and rarely undertook additional appearances. She was prevented from providing broadcasting services to anyone other than the BBC or from contributing to online content or other publications without the BBC's consent, and was required to keep the BBC informed of any other commitments that she entered into.
Such long term contracts where substantially the whole of the individual's working week is devoted to performing the services tend to suggest employment, as does a prohibition on providing services to the client's competitors. The overall picture of a person's engagements is therefore important, as well as the contractual position.
In business on one's own account
The Tribunal also considered whether Ms Ackroyd could be said to be in business on her own account – an indicator of self-employment. This can be evidenced by a number of factors such as the degree of financial risk taken, the degree of responsibility for investment and management and whether the individual has an opportunity of profiting from sound management in the performance of their tasks.
The judge commented that, although Ms Ackroyd was eligible for a "success fee" in certain circumstances, this did not involve any financial risk (there was only upside) and it was not referable to sound management of a business but from sound performance of her role in "Look North". Contributing to the success of a business by providing a high standard of services, and being rewarded for that, does not equate to responsibility for management.
Performance-related payments are not, therefore, going to assist an individual hoping to show that they should not be deemed an employee.
Comment
The issue of differing taxation burdens for working as an employee or through an alternative framework, such as a PSC, is currently receiving a lot of attention. A number of consultations were published earlier this month alongside the government's response to the Taylor Report on modern working practices, acknowledging that employment status is a complex issue involving value judgements on the interpretation and application of case law, which can make it difficult for individuals to predict their status.
One consultation looks at improving the tests that define the boundary between employees and the self-employed for tax purposes, and suggests possibilities such as codifying the existing case-law tests or setting out objective tests to bring clarity to this area. However, any such changes are likely to be some way off and in the meantime, determining employment status remains a difficult and subjective issue.
