What does HMRC’s £140,000 IR35 win mean for businesses?

IR35, Tax

Exploring the wider implications of HMRC’s successful day at the Court of Appeal

Last month, HMRC secured victory in a long-running IR35 case involving Talksport presenter, Paul Hawksbee, which carried with it a tax liability of around £140,000. 

The Court of Appeal (COA) dismissed the radio host’s appeal, handing HMRC victory. On the same day, the COA delivered another verdict – this time instructing the £124,000 case relating to BBC presenter, Kaye Adams’ IR35 status, to be reheard at a tribunal in due course. 

 

Hawksbee fails to convince COA 

First, a quick round-up of the Hawksbee case. Paul Hawksbee, co-host of the ‘Hawksbee and Jacobs’ show on Talksport radio, was appealing an Upper Tribunal decision in 2019 that deemed him a ‘disguised employee’ between 2012 and 2015.

His appeal was rejected, with the COA Judge taking the view that Mutuality of Obligation (MOO) existed, that Hawksbee was controlled by Talksport and also provided a Personal Service to the radio station – in effect, he failed each of the three key IR35 status tests. 

 

Adams’ IR35 case to be reheard 

Onto Kaye Adams, whose case still hangs in the balance. This time it was HMRC appealing an Upper Tribunal decision made last year, which deemed Adams’ contracts with BBC Scotland (held from 2013 to 2017) as outside IR35. 

The appeal was largely based on the Upper Tribunal erring in law, with regards to a historic aspect of case law relating to MOO. In other words, HMRC argued that the judges had misinterpreted this aspect of the case – a point the COA Judge agreed with. As a result, Adams’ case will be reheard in due course. 

But case law and specifics aside, what are the wider implications of a successful day for HMRC? And how much, if anything, should businesses placing and engaging contractors read into it all? 

 

Not your typical contractor engagements 

First and foremost, it should be made clear that the contracts held and working practices of both Hawksbee and Adams were not clearly outside IR35. The existence of MOO, Control and, to a degree Personal Service, meant both had many hallmarks of an inside IR35 engagement. 

In contrast, the vast majority of typical contractors are able to demonstrate that some, if not all, of the three key IR35 status tests do not apply, strengthening their position as genuine contractors who can be safely engaged outside IR35.

 

IR35 is a consideration for all limited company freelancers 

Even so, these cases highlight to businesses that the IR35 legislation is far-reaching. While traditionally associated with IT and technology contractors, the IR35 rules could apply to freelance presenters, marketeers, designers and copywriters operating via their own limited company. 

 

Non-compliance is often costly 

The sums involved in these IR35 cases – which both easily exceed £100,000 – are a timely reminder of the potential cost of non-compliance, with regards to IR35. Other recent HMRC wins, in the public sector in particular – the largest of which was an £87.9m tax bill issued to the Department of Workplace and Pensions (DWP) – also outline the need to prioritise IR35 compliance.

 

IR35 status can be ambiguous 

That both cases made their way to the COA just goes to show the complexity of IR35, which tribunal judges and even HMRC can fail to fully understand. Another key takeaway from these cases, therefore, is that IR35 status must be set with care and revisited regularly – given the nature of an engagement can evolve over time. 

While HMRC’s Check Employment Status for Tax (CEST) tool, is relatively fast and simple to use, it fails to consider all aspects of a contract upon which IR35 status can hinge, as we have demonstrated here. It’s also been dismissed numerous times in court, while HMRC itself won’t necessarily stand by a decision based on CEST’s answer. The most accurate and compliant way to determine IR35 status is via a manual contract review, carried out by an expert, such as Qdos who offer a complete compliance service in the form of Status Review.

 

A final thought

To recap, while HMRC winning one case and forcing another to be reheard could be viewed as unsettling for businesses engaging contractors, these verdicts merely reinforce the importance of compliance. There’s no doubt that with the right approach, contractors can be safely engaged outside IR35.

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